Monday, January 21, 2008

Rising cost of fuel, raw materials to blame for 10-20% rise, say shopsBE PREPARED to spend 10 per cent to 20 per cent more on foodstuffs this Chinese New Year.Those in the trade cite the same reasons for the price hike: Increases in raw material costs and in operational costs from higher fuel prices.They say that the increased costs come from the general upswing of prices last year, but the shortage of supplies and price increases now gripping Malaysia have not crossed the Causeway.While some retailers say they will pass on some of the costs, others have chosen to absorb them to keep their regular customers. However, the higher prices may not dampen demand in this market, estimated to be worth $10 million a year. Owner Chan Kim Ho said: "I am not worried that demand will be affected. In fact, we are swamped with orders."Glory Food Products managing director Andrew Chin said: "The prices have gone up for everything – oil, sugar, butter. And flour – that is the worst."Mr Png Geo Lian, chairman of the Association of Chinese Wheat Flour Merchants of Singapore, said flour prices jumped thrice last year. A 25kg bag which cost $20.40 in August now costs $30.90. The 50 per cent increase is the result of a worldwide shortage of wheat caused by severe droughts and crop delays in Australia, the United States and Canada.Mr Chin, saying that Glory products will cost 10 per cent more, said: "I have no choice but to cover my costsPoh Guan Cake House's Mr Chan said many customers were regulars, "so I won't want to raise prices too much".Among retailers who have chosen to absorb the price hikes is Upper Cross Street shop owner Choong Tzien Tao, who said: "Since it is not very drastic, I would maintain the same price rather than risk losing my customers." (This ain't the complete article, i removed the worthless sentences =P)

Analysis of article:
YET another case of scarcity

One look and this is another case of scarcity. According to the economics text reference, all countries face the basic problem of scarcity such that since human wants are virtually unlimited, resources available are only limited to satisfy out wants, thus a solution has to be implemented or a choice has to be made to make the most of what we have.
We do realize the scarcity of fuel. Fuel is characterized under LAND, such that it is a resource supplied by nature. It is a very limited resource, as research shows that we are running out of natural resources such as oil and fuel. Thus the prices of oil and fuel increases.


A choice or a solution? How about opportunity cost? Which??? o.O?

As mentioned above, the presence of scarcity leads to a choice or a solution that has to be implemented. The result is such that costs rise. Is it worth it now? That the sacrifice of a limited resource in exchange for an extra amount of money? Putting this aside, we do see that (as quoted from the article) “While some retailers say they will pass on some of the costs, others have chosen to absorb them to keep their regular customers”. A fine example would be that of Upper Cross Street shop owned Choong Tzien Tao. He has chosen not to increase the price of the products. This can be explained using the marginalist principle whereby he has chosen benefits over costs. The explanation is such that by absorbing the increase in pricing of the goods, he hopes to retain his customers and not lose them. Usually, some customers, on seeing that there is an increase in price of the goods, they choose to not buy it. In fact, he may have an increased number of customers. This is so because when he has chosen to retain the cost of his goods instead of increasing it, his goods are now priced lower than other vendors’ goods, thus more customers would be attracted to a similar product of a lower price. By doing so, he hopes that by absorbing the increase of price in goods, in exchange he would get more customers. If more customers buy his products, his revenue increases. And this increased revenue should cover or might surpass the amount he had to fork out at the very beginning. This idea can be presented using the PPF. In this current situation, an increase in the retailer’s spending(the extra money he pays to cover the increased cost, absorbing the extra cost), results in an increase in the number of customers that would buy his goods. This could thus be classified as an opportunity cost too. Hence, while the other retailers actually forgo some customers to cover the cost of the price hike, he earns more money than before. =)


The trouble maker: Demand and Supply

So why has the prices been rising consistently?
“Glory Food Products managing director Andrew Chin said: "The prices have gone up for everything – oil, sugar, butter. And flour – that is the worst.”
What does this show? Lets take flour for example. The essential item for making CNY products (for e.g pineapple tarts, almond biscuits). It is in high demand as people WANT it, but the production doesn’t meet the demand. Supply isn’t enough, thus prices as to be increased. Ughhh not good.

Well thats all I can think of.
Painstakingly written by a human called wuhong -> >.<

3:00 AM