Analysis of Banana market in USA

In a recent article written by IFAS I found out that banana is the number one fresh fruit consumed in United States. The volume of banana imports have steadily increased at its peak in 1999, and after that year, continued to fluctuate between 3,800 to 4,100 thousand tons annually. US banana production is very limited in 2009; US total banana production reached at 7000 million metric tons or 0.01% of the total world production. Hawaii is by far the biggest US producer of bananas, followed by Florida.

Recently production of bananas in Hawaii has followed a downward trend; in 2010 from 13,181 million metric tons to 8,090 million metric tons. As I learned in ‘demand and supply’ chapter, two determinants that could result in decrease of banana production are bad weather (supply determinant) and low average income of population (demand determinant). The effects are shown in Fig.1 and Fig.2. 

Fig. 1

As you can see in Fig.1, due to bad weather the supply curve has shifted to the left from S1 to S2. This has probably occurred because of low fruit yield; therefore quantity has decreased from Qd1 to Qd2 - as a result, increasing price from P1 to P2.

US Market for Fresh Bananas

The US banana market is free of tariff unlike the EU market, therefore making it a very competitive market. In 2000, the total value of bananas was at $1.02 billion, representing 32% the total value of fresh fruits imported that year. By 2010, the import value had risen to $1.64 billion, that’s a 64 percent increase over the year 2000 figure. The increase in import value is mainly due to the increase in unit price stemming from weak US dollar and was not a result of increased volume. As shown in Fig.2, total supply of fresh bananas remained relatively constant. This implies in general the US fresh banana market has become saturated. This point is further solidified by the evidence of slight decline in consumption per capita, down from 12.9 kg in 2000 to 11.2 kg per capita in 2009.

US fresh market fruit value of imports, 2000–2010 [Source: USDA/FAS (United States Department of Agriculture Foreign Agricultural Service)]

Price analysis of Fresh Bananas in United States

As I read in the Dole Food Company annual report (it’s in their website), it analyzed the price of conventional bananas among New York City (East Coast) and San Francisco (West Coast), because data on wholesale prices for conventional bananas were limited in Agricultural Marketing Service (AMS) of United States Department of Agriculture (USDA) as mentioned in the report .

I found out that the price of bananas in general increased, significantly in 2008. I suspect this could be because of lower supplies from major producing countries and higher transportation cost due to increase in fuel price. During 2007 to 2010 the price of conventional bananas fluctuated between $12.55 and $24.50 per box, a difference of almost $12 dollar per box. In general prices tend to be higher in the earlier months of the year and then decline in latter parts of the year. This could be because in earlier months of the year weather conditions are too cold across United States, therefore less volume of fresh bananas are yielded from plantation. In later months the climate tends to be relatively warmer, providing an environment to stimulate growth, therefore increasing the yield of fresh bananas harvested.

Demand of Fresh bananas in United States

In a recent journal article I found the retail purchase data of conventional fruits and organic fruits. The study included five major organic fruits and five major conventional fruits including apple, banana, grapes, oranges and strawberries. It was found that demand for both organic and conventional fruits were price inelastic.

The estimated elasticities for organic bananas and conventional bananas were -3.19 and -0.70 respectively. These elasticities are negative, which means, according to economics literature, bananas are inferior goods. Usually low income earners spend a higher proportion of their income buying inferior goods; as income of an individual increases the amount spent on inferior goods decreases. Furthermore, disregarding the negative sign I could conclude that demand for organic bananas is price inelastic, which means demand for organic bananas is very responsive to change in price. A possible reason for this could be that there are many “marginal” consumers. That means if the price of organic bananas rose by 1 percent, quantity demanded will fall significantly more than 1 percent.  On the other hand demand for conventional bananas is price inelastic. So a 1 percent fall in price will have relatively low impact on quantity demanded for conventional bananas.  

Cigarette Market Around the World

In a recent article from Romania-insider.com, I read that Romanians have cut down on cigarette consumption and spend 10 times less than Slovenians. It was expected that tobacco market in Romania could grow to EUR 4.2 billion in 2012. However the retail value of Romanian market would cover less than 10 percent of the total Eastern Europe tobacco market in 2012.

One possible reason for this could be that Romanian government may have set campaigns to build awareness of the harmful impacts of smoking. The effects of this are shown in Fig.1.

As you can see from Fig.1, increasing awareness of health issue regarding smoking would shift the demand curve from D₁ to D₂. Since less quantity will be demanded, supplier’s cost of production is likely to increase. As you can see, due to fall in demand, an excess supply has resulted between Q1 and Q3. In the short run producers may not be able to sell large quantities of packs due to increase in health awareness. This could eventually push the price of cigarettes higher, maybe resulting a further fall in consumption of cigarettes.

In another news article called thestaronline.com, I read that Malaysia will be banning discounts on all cigarettes and only 20- stick cigarette packs will be allowed for sale in Malaysia. Furthermore a price floor of RM7 had been introduced by the Health Ministry. The standardized price was introduced in 2011 but this year the number of sticks per pack has also been standardized to 20 sticks per pack. This had been done to further strengthen the enforcement of the Control of Tobacco Product Regulations 2004.

So basically what the government has done this year is with the imposition of a minimum price it has also limited the quota per pack.

This how the graph for looks for minimum price in Fig.2.

As you can see in Fig.2, introducing a floor price of RM7 results to excess supply between Qd and Qs. This excess supply could be purchased by the government for later purposes. Perhaps if demand for cigarettes increase later, government could sell the cigarette back into the market to ensure that price stays at floor price. Furthermore Malaysian government has also limited the number of sticks allowed in a pack i.e. 20 sticks and the number of packs allowed in one box (10 packs per box).

All this is well good, but the problem with limiting the amount of cigarettes is that it could potentially create a black market for cigarettes selling more number of sticks per pack. If this happens Malaysia will be losing out on a lot of tax revenue.  The article suggests that government plans on reducing the excess demand by promoting campaign awareness through various mediums like Facebook, Twitter, and press conferences. This could help reduce the excess demand, but I think that increasing awareness will only reduce only a small proportion of the population. So maybe all this investment in campaign and regulations may not have that big of an impact on consumption in the long run.  

Minimum Wage Effective On Jan 1 Next Year

According to a news on The Star Online, 16th July 2012, the Minimum Wage Order 2012, which was gazetted Monday, effective on Jan 1 in 2013 for employers who employ six workers or more. According to the gazette, the minimum wage rate is fixed at RM 900 per month or RM 4.33 per hour for the peninsular and RM 800 per month or RM 3.85 per hour for Sabah and Sarawak.

The effort of government trying to increase the minimum wage is to secure the income of employees in the country, consider the low-pay working class especially the blue-collar. Therefore, they establish a price floor that makes it illegal to the employers to pay lower for their employees. A price floor is the minimum price fixed by the government. A price at or above the price floor is legal; a price below is not allowed. In the labor market, the floor is called the minimum wage. Simply put, minimum wage implemented to set the price higher than the equilibrium price. Apply the definition of equilibrium price stated early above, we can see that the government is trying to set a minimum wage to the labor market in which to set the price floor above the equilibrium price. Now, the economic effects occur where when the price set above the equilibrium price, the quantity of labor supplied exceeds the quantity of labor demanded thus there is a surplus of labor in the market. When the effect of surplus applied to a labor market, it is called an unemployment. In other words, minimum wage policy will encourage unemployment rate in the country. Consequently, the minimum wage is considered inefficient in an economic point of view. The minimum wage increase the unemployment rate and thus increase the job search. To explain, at the quantity of labor employed, the marginal social benefit of labor exceeds its marginal social cost of labor and a deadweight loss shrinks the firms' surplus and the workers' surplus.

Cheaper House for Selangor Folk

According to the news on The Sun on 21st September 2012, the price of affordable houses in Selangor will not exceed RM 120,000, Mentari Besar Tan Sri Abdul Khalid Ibrahim pledged yesterday. Abdul Khalid said the ceiling price is set in light of studies revealing that about 40% of Selangor households have an income of between RM 2500 and RM 5000. As an initial step, the state has set the price for affordable houses (800 - 1000 square feet) for middle income earners at between RM 85,000 and RM 120,000.

The government intervention in the housing market is to control the soaring prices of the houses in today's housing market and to ensure the low-income earners can afford buying houses in the states. So, they come up with price ceiling that makes it illegal to the seller to charge higher price than it is allowed. A price ceiling or price cap sets the maximum legal prices a seller may charge for a product or service. A price at or below the ceiling is legal; a price above is illegal. In the housing market, the ceiling is called a rent ceiling. In other words, rent ceiling tend to set the price lower than the market equilibrium price. Market equilibrium price (or equilibrium price) is the price where the intentions of buyers and sellers match. Theoretically, at the equilibrium price, the quantity demanded equals to the quantity supplied. Now we refer to the excerpt of the news above, we can see that the government is trying to impose a rent ceiling to set a maximum selling price for houses. The economic effects occur now: when the rent set below the equilibrium price, the quantity of housing demanded exceeds the quantity of housing supplied, thus there is a shortage of housing in the market. When shortage exists, the unit of the cheaper houses intended to sell the poor will be misallocated. This is because more and more lower income families are in search of those cheaper houses and the quantity of housing demanded increases at a lower price. Thus, people who really poor and in need of theses cheaper houses cannot buy it since there is a shortage in the market. At the end of the day, they will want to look for other alternatives in the market. Consequently, they will need to spend a lot of time in order to look for other cheaper houses available in the housing market. In the context of economics, anything that incurred the usage of time is considered a cost. Such cost is called the opportunity cost. The opportunity cost is spent when they in search of advertisements in the newspaper, browsing property websites through internet, making call to friends and agents for houses and the time consumed to visit houses. Hence, the opportunity cost is increased and all other resources such as car petrol, electricity bill, phone bill, and transportation fare is relatively increased. Another economic effects for imposing the rent ceiling will also encourages the illegal trading - a black market; an illegal market in which the equilibrium price exceeds the rent ceiling. When people still cannot find cheaper houses to reside, they will become frustrated and tend to find alternatives, for example to rent a house instead of buying a house. Now the landlord who is also frustrated due to the law imposed by the government to control house prices will start to run a black market. They do this because of unprofitable renting business due to cheaper houses are available in the market before and people are willing to buy those houses instead of to rent one. Since the shortage exists, the landlords tend to increase rental for the frustrated people who unable to seek cheaper houses.

CPO Prices to Stay Around RM 3,000 This Year: MPOB

Based on the excerpt of news from The Sun on 13th September 2012 saying that, crude palm oil (CPO) prices are expected to hover around RM 3000 per tonne for the rest of the year as demand for the commodity is still sustainable, said Malaysian Palm Oil Board (MPOB) chairman Tan Sri Shahrir Abdul Samad. CPO prices are currently below RM 3000 per tonne, but Shahrir believes that prices will strengthen in the near future. In fact, there are expectations that the price of CPO will surpass the RM 3000 level. There is sustainable demand for palm oil as it is the most efficient vegetable oil and very affordable.

Crude palm oil is one of an important and valuable resources in the market. It is greatly used to produce cooking oil, vegetable oil, margarine, vitamin supplement, soap, moisturizing lotion, candles, and lubricants. Therefore, when any factor that influences buying plan changes, other than the price of the good, there is a change in demand. In this case, there is a change in demand instead of change in quantity demanded because there is a factor other than the price of the good (price remain constant) - an expected future price of the crude palm oil. Let us assume the price of crude palm oil is expected to increase in next month (we can see better demand effect if we assume a month later instead of a few years later), say, from RM 2000 to RM 3800 per tonne, the current demand for people to purchase more vegetable oil and margarine will increase dramatically whereas the future demand will decrease since people can expect the price of crude palm oil will increase after a month later. Simply put, people will want to buy more before price rises and to buy less after the price rises. The change in demand will cause the shifting in the demand curve. Thus, when demand for vegetable oil and margarine increase, the demand curve will shift to the right. For such, a demand curve is the best tool to show the effect of change in demand. FIGURE 1.1 below shows the change in demand of crude palm oil:

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FIGURE 1.1: An Increase in Demand

Based on FIGURE 1.1 we can see that if the price of crude palm oil is expected to increase in the next month, the demand for palm-oil related goods such as vegetable oil and margarine will increase today. The consumer will start to buy more cooking oil and store it in the kitchen before the price rises. Thus the demand curve will shift rightwards, in other words, there is an increase in demand when the expected price in future is going to increase. Conversely, if the expected future price of the palm oil decrease in next month, the demand will decrease resulting in the demand curve shift to the left.

In contrast, the supply will decrease today but increase in the future. This is because producers or sellers are greedy in making profits, some of them will withhold the supply now in order to push up the price and then sell to the buyers in the future when the price is increased. Thus, the palm oil market will experience a change in supply. The change in supply is defined as 'when any factor that influences selling plans other than the price of the good changes, there is a change in supply' (Parkin 2012, p.63). Price remain as a constant determinant while the other factor that affect the selling plans is the expected future prices of the crude palm oil. The supply implies in the whole relationship between the price of a good and the quantity supplied of it.

Supply can be demonstrated in the supply curve whereas the term quantity supplied refers to a point on a supply curve - the quantity supplied at a particular price. As similar as the statement made early above, when the market experience a change in supply - the supply curve will shift to the left, i.e. a decrease in supply. Also, the effect of change in supply can be illustrated in a supply curve, refer to FIGURE 1.2 below:

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FIGURE 1.2: An Decrease in Supply

The illustration of the graph above shows the supply curve of supplier or producers behavior when there is an expected future price rises of the crude palm oil. The sellers intend to decrease the supply today and to increase the supply after the price of palm oil has increase in the future. Hence, the supply curve will shift from the original position to the left, which means there is a decrease in supply. Conversely, if the expected future value is going to fall next month, the supply curve will shift to the right which implies an increase in supply.

The overview of the study of an increasing price of the crude palm oil is based on the justification on the model of change in demand and change in supply - it is a two edged argument. To conclude, when the price is at ceteris paribus and all other determinants are changing; in this case - the expected future price of a good, the change in supply and demand will occur. When the price is expected to rise in future, the demand curve will shift to the right which means the demand is increased. At the same time, the supply curve will shift to the left which implies the supply is decreased. To contrast, if price is expected to fall in the future, the demand will decrease and the demand curve will shift to the left. Similarly, the supply will increase and the supply curve will shift to the left.

Selangor Folk to Face Water Woes and Firm Feels the Heat to Meet Rising Demand

I have read an article from the Star newspaper title ‘Selangor folk to face water woes and firm feels the heat to meet rising demand’ by Loshana K. Shagar and Shaun Ho. The conflicts over natural resources will grow in times. It is an interesting headline over the title regarding the natural resources that are scarce. Economists view things from a unique perspective. They view the world through the lens of scarcity.
Scarcity means a situation in which the amount of something available is insufficient to satisfy the desire for it. It limits options and demands choices. Sources can be categorized into four. There are labor, capital, land or natural resources and entrepreneurship. Land or natural resources are the preexisting “gifts of nature” in a country. This includes land, as well as useful materials found under it or on it, such as crude oil, iron, coal and petroleum.

In the article, the main argument is about water demand is increasing due to a hot weather. In that case, it causes Syarikat Bekalan Air Selangor (SYABAS) to increase the supply of water to the maximum level of 466 million litres per day in Sg Langat treatment plant and 688 million litres per day in the Sg Semenyih treatment plant. According to SYABAS corporate affairs executive director Abdul Halem Mat Som, the problem was not a shortage of supply but an increase in demand. However, the issue should not be problems as SYABAS has to be ready of any consequences especially the weather. We are aware of Malaysia’s weather that sometimes it can reach up maximum to 33 degree celsius based on World Weather Information Service. They can refer to a forecast of climate change from time to time. In terms of climate change, Malaysia is not the only country that is having an extremely hot weather. There is other country that is having a higher degree than us. For example, United Arab Emirates, Somalia and even United States of America is suffering from drought. It is not affecting the water supply but also on agriculture terms and food supply.

In my economic point of view, SYABAS should invest and focus on research and development for the future mankind. Water management has to be systematic, futuristic and economistic. For example, in Singapore, they runs the water reclamation programme, which uses advanced membrane technologies involving microfiltration, reverse osmosis and ultraviolet disinfection, to recycle used water, has been particularly successful. With the water industry projected to be worth about US$400 billion by 2015, the Singapore government has identified it as a new growth sector for the country’s economy. As such, about S$330 million will be invested in water R&D over the next five years to develop Singapore into a hub for water technologies. Mr Khoo Teng Chye, the Chief Executive of PUB, attributed Singapore’s success to several factors. He said, “We believe that innovation is important and have always placed emphasis on R&D and investing in technology”. In order to achieve such succession, SYABAS should be innovative and dare to take the risk. Bringing in more water will only alleviate the problem in the short term but lifestyle change is the long-term solution.

This scarcity will lead to wise decision making in supplying clean water to every state in Malaysia especially Selangor. Of course consumers do not want any shortage of water in 5 years times and rising in price of water. In a 2008 study conducted with the Energy, Green Technology and Water Ministry, Malaysians were found to be the highest water users in the Selangor. “We use over 200 litres per person each day and 70% of those surveyed admitted they were not likely to change their lifestyle”. In my opinion, in order for us to conserve and preserve the clean water, both the firms and consumers have to play an important role. Water is a part of Mother Nature given to us and we have to appreciate it before it is gone. There are few steps that can be taken in our daily life in order to save water. Cut down shower, off the tap water while brushing the teeth and save 25 gallons a month. Clean water is a finite natural resource. Saving the water should be something practical in our life. Besides that, taking care of our river by not throwing trash or garbage in it also important. River can be a source of clean water in need of the hard times. But unfortunately, rivers in Malaysia are not clean enough and most of it clogged by unwanted trash.

Economically, the increase in demand will eventually increase the price of water since water is a natural resource that is scarce. All consumers are affected to the price change. The law of demand states, other things remaining the same, the higher the price of a good, the smaller is quantity demanded. Assume that the good is water. By this time when consumers receive a higher bill of water, they start to realize and reduce the wastage of water. Abdul Halem Mat Som also added that in the last ten years, the increasing of developments in the district causes the demand for water supply to increase. In 10 years times, the size of the population will increase. Demand also depends on the size and the age structure of the population. The bigger the population, the higher the demand for water. As for instance, increasing the amount of citizens will increase the amount of residential area; hence the demand for water supply is also higher. For the benefit of our future generation, we should start to save water from today.

As for the conclusion, Malaysia has to work on improving their water management system. Improving the system will make efficient supply of water even in 100 years times. Water is a basic thing of life and it is use every single day in our life. Organizations and individuals have to work on it together for the sake of our water. May this water issue won’t become a problem in the future.

Floods and Global Climate Chaos

The areas of Thailand affected by floods.

In year 2011, the economy of some countries was unstable. According to the articles in The Star and Information Week – Big Data, there were a few countries were under attacked by the natural disaster. After Japan was attacked by the earthquake and tsunami, the next serious case was in Thailand -- which was being attacked by the flood. The flood was a threat to the Thailand’s economy because it had forced around 1000 of manufacture factories and estates to shut down. It is because the prime minister of Thailand thinks that it needs a few weeks to wait the water drain away in all the areas that had affected by flood. Hence, he got no choice and made a decision like this.

            Based on the Thai flood’s articles that I have read, by using my economic knowledge, there are several factors affecting the supply. It’s either to increase to decrease the supply of the country. One of the factors that change supply of a good is state of nature. Based on the Thai flood’s article, due to the heavy rain and followed by floods in Thailand for several months, lots of factories and estates was being shut down due to the manufacturer are unable to get the raw materials or get orders from people. From here, supply of the raw materials decreases and the supply curve move to the left. This is because the production was slowed down due to the shortage of raw materials in Thailand. From this flood we can see that Thailand was having shortage of getting raw materials to start the work. As a result of this, unemployment rate increases in Thailand, meaning the number of suppliers will be declined as well. Again, the supply curve moves to the left side. 

            Besides that, according to the article that I’d found, Thailand is also known as the world’s top supplier of IT accessories, especially hard disks. Due to the flood in Thailand, some factories had disrupted supplies to companies like Lenovo and Samsung, it had caused a declining the sales of their computers. Since computers are one of the modern technologies which people have to use it every day, it means the demand for computers keep increasing while the supply decreases. From here, we can see that Thailand was having shortage of getting computers. By using what I had learnt from economic, there will be an increase in demand which is mean the demand curve will shifts to the right .However, at the same time, the supply decreases and the curve will shifts to left.

Figure 3.1 : The demand and supply curve of IT accessories

From here, we also can see the price of some items like IT products has been increased. It’s because the demand of the IT products are very high but the supply of the IT products are low. A few examples of IT products’ price increased are hard disk, USB and computer parts. Price of item like hard disk was raised till 180%. In this problem, we can see the demand curve was remaining the same whereas the supply curve for the items moved to the left. We also know that Thailand was undergoing a shortage of items due to most of the manufacturers are unable to get their computer parts and the factories were being shut down for a moment.

            In addition, based on the article, we also can see the supply of some foods we decreasing. The main few crops are grains and wheat. The supply of both crops was decreasing. People were unable to plough their farm to plant their crops because of their farm has been destroyed. This has caused the crops were also having a shortage in Thailand. Hence, the price of veggie crops and grains were highly raised. The demand of the foods were never changed but increased. So from here we can know the demand curve shifts to the right while the supply curve shifts to the left. The demand curve shifts to the right shows that there is an increasing demand of foods while supply curve moves to left. This has indicated the production of food is decreasing. As a result, an increase in demand and a decrease in supply raise the equilibrium price .This means that the price of the food sold will raises due to the shortage of crops.

             Furthermore, according to the research done in Thailand, seven billionths human being to occupy the world will be born sometime this week. Unfortunately, flood still keeps happening in Thailand. One of the factors affecting the change in demand is population. The higher the population, the higher is the demand. This tells us that the demand for many goods will be increasing, but the supply of those goods will be declining.

            Additionally, elasticity can also be applied as well. Regarding to the production of rice crops affected in Thailand, price inelastic demand happens in this case. This is probably because every one of us needs to eat rice every day. So, they will surely buy food despite it costing more. So, from here, the perfectly inelastic demand curve shows vertical. However, on the other side of elasticity of supply, perfectly inelastic supply happens here in which the supply curve is vertical.  This situation happens was because the firms find it hard to change production in a given period of time. In Thailand, since there is flood happening around all the area in the country, the factories in Thailand are unable to produce more products. Because they have to produce in a short given of time, the firms were unable to change the production.

            Due to the floods in Thailand, countries like Japan also had been affected. Japan where the country producers’ cars like Toyota and Honda factories were also forced to shut down due to unable to supply car parts to the other plants around the world. Therefore, due to the factories were affected by the flood, the cars’ prices was increased due to the shortage of the car parts and the prices of the car parts were increased too.  

Reference Link :
1. http://thestar.com.my/columnists/story.asp?file=/2011/10/31/columnists/globaltrends/9804786
2. http://www.informationweek.com/storage/data-protection/hard-drive-prices-rise-due-to-thai-flood/232301534

Delivering an Effective and Efficient Transport System

            Based on the article “Delivering an Effective and Efficient Transport System” in the Business Times, we found most of the city or town in this country has a need to get very effective and efficient transport system urban public transport as the population of people in this country are growing every day. Especially in big city like Kuala Lumpur. The numbers of people use the public transport to travel around is increasing. Countries like New York, London, Tokyo and Singapore, they have a very fast and dependable urban public transport system. As for now Malaysia are heading towards to the road of becoming one of the high-income nations in the world, the Malaysia government realised that they must have a fast, reliable and comfortable urban public transport system instead of having those slow, unreliable and not-on-time public transport. There are a few reasons of why is there a needed the system of effective and efficient transport system.

As the population are growing, the demands for car s are also increasing too. Adults will have to drive to their working place and the students will have to drive to their college. When the cars on the road are increasing, there will always a heavy traffic jam in the rush hours such as during 7:00a.m. to 9:00a.m. early in the morning when everyone is going out to work and 5:00p.m. to 9:00p.m.which is when everyone is going back home after their job of the day is end. At this point, there will be an opportunity cost because people will have to sacrifice their dinner time with family or resting time because they might be stuck in the traffic jam for at least 1 hour (depends on how heavy is the traffic jam and area). Even though there are trains and buses as our daily transport, but people are still facing the same problem.  People who taking public transport have to take longer time than those who driving to their destination. As we move down along the PPF, we can see that the longer the time of people jam in the congestion then the shorter the time of people spend time with their family. This is one of the reasons why people will rather purchase a car to drive to their destination instead of taking public transport. So this has caused the car has increased very rapidly every year.

Since many people are having a hard time on jamming in the heavy traffic jam, some of the citizens decided to take public transport to work. So this has caused the demand for the KTM, LRT and buses in Malaysia have increased. But due to the not-on-time basis of the public transport, it had caused the demand of the cabs increases too. This has caused the price of the cabs increased because there are many people are willing to pay more to reach their destination when they are going too late to work or when there’s an urgent matter during the delay of public transport. For example in Singapore, there was a serious case about MRT system was down for 4 hours in December 2011. At that time, people who were in an urgent matter or not willing to waste their time on waiting the system recover will take bus and cabs to reach their destination. Cab drivers has took that opportunity to increase the price of the cab due to it’s an income opportunity for them. Smart people will always take the opportunity when the time is right. Although the prices of cab has increased, but people are still willing to take cabs when there are no choice for them to choose. So the price of the cabs is perfectly inelastic demand, especially for the poor people, because people are still willing to take cab although the price has increased up to 25% ~ 35% of the original prices. From here, there is a perfectly inelastic demand which the demand curve is vertical especially for the poor citizens. For poor citizens, they do not have any choice, because there are no any substitutes for cabs, and therefore, they will have to pay for it if they want to take a cab. However, for those citizens with higher income, there is a perfectly elastic demand in which the curve is horizontally. Even though the prices of cab already increased, they have other options instead of taking a cab.

In order to able to make the big cities such as Kuala Lumpur and other places are become liveable for work, leisure, entertainment and learning, an efficient urban public transport is very important key to make it happen. Malaysia government had done a lot of upgrades to make the public transport become better. A few of the new systems was being introduced to the Malaysians. A free city bus service was introduced in Malaysia by our prime minister, which is the Go-KL City Bus. Since most of the people and traffic jam in KL, he increased the buses to improve the mobility of access to public transport. A few new features will be installed in the buses. The new buses system is free and easy ride too. Another one is the all the trains are also undergoing a big upgrade. Rails of the trains are now having extension and expansion. So, numbers of KTM Komuter and LRT has been increased. MRT were also introduced in Malaysia.

From all these services, we can see that in future, the demand for transport will be increase since they are so convenience for all users. We also can see that the supply for these transportation are also increasing due to the increasing of the public transportations. The public transportation drivers are now also on demand. From here we can see the demand curve will be shift to right side because the quantity demand has increase since there are so many advantages on taking public transport. We also can say as the cars will be substitute into the public transport which is mean when people find there are more advantages in the public transport, people will substitute from driving by own into take public transport.

As a conclusion, the supply of public transport will be increase due to the demand are also increasing when the advantages of taking public transport has been given.