New Recommendations required to Cigarettes market in Malaysia.

In an article from a latest The Star Newspaper September 3, 2012 (http://thestar.com.my/news/story.asp?file=/2012/9/3/nation/11959171&sec=nation), new recommendations have been required to the cigarettes market in Malaysia following an anti-smoking plan led by the Government.

This way of government intervention is price floor, which is one of the two types of price control. By presenting a minimum price, customers will not get to buy the item at a discounted price from the amount that was set. Government uses price floor to restrict prices from getting too low by fixing it above the price equilibrium. This will cause the quantity demanded to drop, especially among customers with low earnings. However, this will not impact wealthy customers as they have enough money to pay for the price that is above the equilibrium level.

However, the council chairman for Malaysian Council for Tobacco Control, Dr Molly Cheah, doesn't agree that developing a price floor will make a significant effect on the present revenue of cigarette packs in Malaysia as it is not enough for devoted tobacco users to punch away the habit. She seems that having a stricter ceiling price would have been a better option of action by the Government and even though such option will motivate illegal cigarettes being smuggled into the nation, she considers that it is the responsibility of Customs Department to deal with and negotiate that issue.

If the price ceiling for cigarettes is further required, suppliers will not sell as much which will cause shortage of cigarettes in the marketplace. Shortage is determined as the “situation where the quantity available or supplied in a market falls short of the quantity demanded or required at a given time or price”. Thus, customers will not get to buy as much as they used to as there are lesser quantities in the marketplace and this will gradually lead to lower revenue. Eventually, an incident known as black market might happen due to this judgment. Richer customers will be more willing to spend more to acquire the cigarettes available at a cost above the price ceiling, which is against the law.

 Honestly discussing, price control news for cigarettes is no longer amazing to Malaysians as actions to reduce the revenue have been performed for decades. Back truly, prices of cigarettes were increase by 70 cents per package of 20 sticks of cigarettes which is by far the biggest price increase recently as past rise was between 10 cents and 30 cents. It was predicted that following the supply and demand concept, the requirement for cigarettes of would reduce when the price goes up.

Following the news (http://news.malaysia.msn.com/regional/article.aspx?cp-documentid=4375966) of the cost escalation in 2010, according to the chief executive of Federation of Sundry Goods Merchants’ Association, Trim Hing Chuan approximated that the increase in of 70 cents in the price of cigarettes would cause a 10% fall in the sales of cigarettes. A loss of revenue of cigarettes was documented from 14,086 million in 2010 to 13,758.9 million in 2011 after the price increase in 2010. However, the amount was far from the approximated 10% decrease as it has only decreased by 2.3%. Despite the frustrating figure, time and extra strict guidelines to prevent the smoke revenue might confirm the forecast to be right as there is a significantly large loss of 20.3% in a period of 5 years from 2006 to 2011.

The purpose for the crawling effect could probably be due to exterior factors such as the behavior of the customers themselves. Despite the increase in price, these customers find it much simpler to invest extra price than to actually stop the addiction. It was revealed that a few cigarettes users revealed that the costs may be challenging for them but it is not likely that they will give up on smoking cigarettes because of it. A retired person known as Wayne even described that, he turned to purchasing illegal cigarettes that are smuggled into the nation. In business economics phrase, it could be said that cigarettes are an inelastic goods. Inelastic goods have a nearly constant demand a rise in price which is applicable in this situation.

I believe that the revenue of cigarettes in Malaysia is decreasing at a slower speed due to many customers who are unfazed by the price control set by the Government. The drop in revenue is also not making much of a result as customers end up deciding for other possible choices that are against the law such as black market and smuggled products to acquire their pack of cigarettes. Thus, the decreased revenue of lawful cigarettes regionally do not actually signify that is it effective in avoiding Malaysian customers from buying them and hence, the tighter guidelines required enforced the local smoke industry is not effective in decreasing the requirement for cigarettes.

Reference

Caleb Yeoh 2010, Biggest price hike for cigarettes so far, viewed 1^st June 2013, <http://news.malaysia.msn.com/regional/article.aspx?cp-documentid=4375966>

Regina Lee 2012, More rules to deter smoking New Price Control on Cigarettes introduced, viewed 1^st June 2013, <http://thestar.com.my/news/story.asp?file=%2F2012%2F9%2F3%2Fnation%2F11959171&sec=nation>

Davig Begg 1994, Economics, 4th edition, McGraw-Hill , viewed 1^st June 2013, pp. 40-43