Wednesday, October 04, 2006

International Relations

An interesting article appeared while I was surfing the net. It proved to me that even the ideas and topics we are learning about here in Marietta, in Microeconomics class, are relevant to what is actually happening in other countries of the world, not just the US.

The government of Kedah, a state of Malaysia, imposed a price ceiling on chicken. A price ceiling, as you know, is the maximum price sellers are allowed to charge for a good. The price ceiling was imposed by the government in hopes to benefit the consumers of chicken, but in doing so, it impacted the sellers in an extremely negative way. Now, over 300 chicken sellers may have to call it quits after many of them have been selling chicken for decades.

The government decided to reduce the price ceiling from 3.50RM* per kilogram to 2.80RM per kilogram and because of this, according to Mat Rashid Hanapi, people like him have been losing about 300RM per day, which is roughly equivalent to 80 dollars in America. Although it doesn't seem much, $80 dollars adds up, and in a less developed economy, this may have a large impact on many of the people who sell chicken as a means to survive.

Now, going back to opportunity costs, many find that there are better things to do than waste their time and energy on raising chickens to sell. Hanapi says "the more chickens they sell, the greater their loss," meaning that they could be making a bigger profit by doing other kinds of work.

What do you think? Did the government of Kedah make a good decision by introducing a price ceiling? Or should the government keep its "hands off" by letting the market be the most efficient by finding its equilibrium price?

*Note: RM stands for Ringgit Malaysia, which is the currency in Kedah, Malaysia.

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