GROUP ASSIGNMENT COVER SHEET

MICROECONOMICS
BB107//BBB1023/BBS1083
May 2022 Intake

GROUP NUMBER : _____

(1) Name: Sitheswaran A/L Selvam Student ID:1002164094

(2) Name: Tasfia Nahiyan Student ID: 1001852645

(3) Name: Kuok Mei Yi Student ID: 1002266553

(4) Name: Liu Zelong Student ID: 1002060189

Lecturer’s Name: Dr. Wong Hoong Sang Date submitted: 5th July 2022

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This submission complies with UCSI University's academic integrity commitments.

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[Signature of Student (1)] [Signature of Student (2)]

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[Signature of Student (3)] [Signature of Student (4)]

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Part A (40 marks):
1. Describe the pre-pandemic vaccine market structure in the world. (5 marks)

Before COVID 19, Europe(44%) was at the top of the list of vaccine manufacturers. India
and China came immediately after in the list. Europe's target countries for exporting these
vaccines were mostly higher-income countries, whereas India's was targeted mostly
developing nations. This data clearly suggests that the pre-pandemic vaccine market was
divided into two categories: relatively rich countries were supported by EU (and also US)
production capacity; and India was responsible for the vaccine production for developing
countries. The US and UK were the primary revenue markets for the EU's vaccine support. In
contrast, low-income countries provided only 1.2% of EU revenues but absorbed 3.9% of
volumes exported from the EU. Therefore, In the pre-pandemic export market for vaccine,
the top vaccine producers are the EU, India, China and US, but China and the US produce
mostly for their own local consumption. Other important producers: Indonesia, Korea, Japan
and Russia. EU exported relatively more to high-income countries at higher prices (60%),
low-income countries (12%) , India exports mainly to developing countries under developer
license

2. In terms of covid 19 vaccine production, explain the major factors that restrict certain
countries (e.g. US, Europe, India, Russia) from exporting covid-19 vaccine for global need
especially developing world between August 2000 and August 2021. (5 marks)

One of the major reasons for restricting some countries' exports of COVID-19 vaccine is
disunited political leaders to fight against the COVID-19 pandemic. The vaccine nationalism
and ideological differences among countries played a significant role in creating obstacles for
export. This, accompanied by the lack of efficient global cooperation on knowledge sharing,
technology transfer and vaccine safety issue.

The profit-driven motivation for the flow of vaccines is another issue for stagnation. The
profit driven motive is relatively slow and inefficient as it involves advance procurement and
commitment agreement. The other issue potentially faced is the unwillingness to waive patent
rights and encourage technology transfer with overseas drug makers to encourage more
production.

There is also unequal access to vaccine and any delay in global vaccination will likely
cause more deadly virus mutation.

3. Employ the Production possibilities curve (PPC) model to help you to explain how Covid-
19 pandemic affect the PPC curves of Malaysia and China. (6 marks)

The PPC curve is plotted to the right due to the fast control speed and huge production
capacity of China during the pandemic, and the large number of vaccines that Chinese people
received and exported to other countries.

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During the epidemic, Malaysia's economy suffered a huge impact, indicating economic
recession. In this case, people may lose their jobs or die from illness, so people's lives are
greatly affected, so the PPC curve moves inward.

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4. Analyze any TWO (2) factors that might affect the equilibrium price and output of Pfizer
vaccine (use appropriate demand and supply diagram for each case). (6 marks)

Pfizer company, along with pandemic pricing, also pay for materials, labor, factory
overhead, shipping, distribution costs, and more to deliver doses. The supply chain is one of
the biggest factors that has affected the equilibrium price for Pfizer vaccine. Other factors
include high tariffs, poor coordination of logistical processes and misinformation about the
vaccine which results in decreased demand. All of this leads to market inefficiency that
results in dead weight loss.

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5. Did Malaysian government currently able to bring the Covid 19 disease under control?
List out 2 economic benefits of managing the disease well. (3 marks)

Yes, the Malaysian government was able to bring the Covid 19 disease under control by
implementing several measures notably the Movement Control Order (MCO) and many
more. To lessen the effects of the MCO, the Malaysian government has granted a huge
budget to various sectors to lessen the effect of this pandemic, initiate people-based economic
growth, and encourage quality investments. The PRIHATIN Package has been one of the
beneficial initiatives announced by the government, followed by drastic measures of a 6-
month moratorium offered by BNM to reduce the financial impact. An economic benefit of

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managing the disease well would be the revitalisation of the tourism sector which will bring
in revenue for the country. Another benefit would be that if the disease is well managed, it
opens up possible investments into the country.

6. Recommend TWO (2) policies that government can use to support the growth of the
indigenous vaccine production technology in Malaysia. (5 marks)

The government can implement an expansionary fiscal policy by increasing government

spending on research and development. If the private sector does not have sufficient incentive
to carry out R&D, one possibility is for the government to fund such work directly.
Government spending can provide direct financial support for research done at colleges and
universities, non profit research entities as well as at government run laboratories. The
government can also provide tax breaks for research and development. It is an approach that
does not involve the government’s close scrutiny of specific projects and give firms a
reduction in taxes depending on how much R&D is done. The government can make these
vaccines a public good and also waive patent rights.

Part B (60%)
1. Use a demand-supply diagram to explain how the following factors will affect the
equilibrium price and output of the Gold market:

a. People are afraid that the world stock and bond markets will crash soon. (5 marks)

The supply of gold is constant and demand increases as people will buy more gold to sell
after the stock market recovers. The supply curve will shift to the right. As a result, the new
intersection of the supply and demand curve is at higher values on both the price and the

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quantity axes. So, an increase in demand raises both equilibrium price and equilibrium
quantity.

b. There is a discover of a very big gold mine in South America. (5 marks)

The new discovery will increase supply in South America and in the world. The demand
for gold is constant but supply increases. This will shift the demand curve to the right. The
new intersection of supply and demand is located at a lower equilibrium price but at a higher
equilibrium quantity. An increase in supply reduces equilibrium price but increases
equilibrium quantity.

c. Scientists discover that gold can be used for a wide variety of industrial machinery and
products. (5 marks)

Supply and demand for both will increase for gold as industrial business owners will
willingly pay for gold for new innovative ideas that will maximize their profit when
supplying the products and services hence gold distributors will be encouraged to supply
more. Supply increase drops equilibrium price, while demand increase boosts it. The increase
in demand is greater than the increase in supply which means that the equilibrium price will
rise. The effect on equilibrium quantity is indeterminate

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d. Consumers in China and India are increasingly interested in keeping gold ornaments.
(5 marks)

The supply of gold is constant and demand increases as people will continue to buy gold
ornaments no matter the price increase. As a result, the new intersection of the supply and
demand curve is at higher values on both the price and the quantity axes. So, an increase in
demand raises both equilibrium price and equilibrium quantity

2. Answer the following questions:

a. Explain the main difference between the law of supply and price elasticity of supply.
(4 marks)

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According to the law of supply, the quantity supplied for a good increases as its price
increases, when all other things are constant. It measures responsiveness of sellers to changes
in price. The main difference is law of supply tells us the change of direction of supply, the
price elasticity determines the magnitude of change in supply.

b. Use the price elasticity of demand to determine the elasticities of the following goods:
i. Musang king durian in Malaysia (2 marks)
-Inelastic, it is seasonal, luxury fruits
ii. KFC fast food (2 marks)
-Elastic, there are many substitutes for KFC, for example Texas Chicken
iii. Space travel (recently offered by Richard Branson) (2 marks)
-Inelastic, it is a luxury and a unique service, no substitutes

c. Explain why demand for petrol tend to be more inelastic in the short run than in the long
run. (2 marks)

Because the time for consideration is shorter, due to that, the price is not a main factor
when deciding which good or services to choose from, so it is more inelastic.

d. Evergreen company specializes in supplying online awning materials and wishes to

increase its total revenue. Based on past consumer online behavior, Evergreen company can
categorized its customers into two different markets: Urban and Rural markets. Below table
shows how the two regions respond to a 25% rebate.

Volume of sales before Urban Rural

the 25% rebate (sales per month) (sales per month)
1000 400

Volume of sales after the

25% rebate 3000 500

i. Using the midpoint method, calculate the price elasticities of demand for both regions.
(4 marks)

=8

=1

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ii. If Evergreen company wants to boost its sales and income, should the rebate be offered to
Urban or Rural region in Malaysia, or both regions, or neither regions? Justify your answer.
(4 marks)

Urban, the price elasticity of demand (PED), for urban is 8, which is higher than rural, 1,
this indicates that urban is more elastic than rural. When price of urban decreases, the
percentage change of quantity demanded will be higher than percentage change in price, it
will then boost the company’s sales and income.

3. Answer all of the following questions:

(a) Given Adam’s income is $200/ week and he can only spend on either book or pizza which
costs $50 and $25 respectively. Use an appropriate diagram to explain the economic concepts
such as scarcity, choice and opportunity cost faced by Adam. (10 marks)

Opportunity cost is defined as forgo the next best alternative because we have to make
choices due to the basic economy problem which is using limited resourced to meet unlimited
needs and wants. The state of not being able to obtain all the commodities and services one
desires is known as scarcity. It exists because there are more commodities and services that
people demand than can be produced with all of the available resources. Because of scarcity,
and we have limited resources, therefore the economic problem exists. Choices involves
trading off the expected value of one opportunity against the expected value of its best
alternative. If Adam buys 4 books, the number of pizza he can buy is 0. Therefore, he forgoes
the opportunity to purchase pizzas. If he buys 2 books, he can buy 4 pizzas. This refers to the
choice he makes with scarce income.

(b)
(i)Assume Lily spent all her income on all the goods below (represented by bundles A, B, C,
and D) with their respective marginal utility (based on the last unit of good consumed). The
price of Good 1 is $1, the price of Good 2 is $2, the price of Good 3 is $3 and the price of
Good 4 is $4. Compute and explain which bundle of goods she will consume to maximizes
her total utility. (5 marks)

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The concept of marginal equality is such that the slope of indifferent curve is equal to the
slope of budget line in absolute value terms, mu(1)/mu(2)=price of 1 price of 2. Considering
the table above we can see that bundle c will consume to maximise the utility this is because
when dividing good one by good three in bundle c the result will be same when you divide
the price of good one with good three. This proves the concept that slope of indifferent curve
is equal go the slope of budget line in absolute value terms.

(ii) If MU1/P1 > MU2/P2 > MU3/P3 > MU4/P4 , explain how Lily can adjust her spending
to maximize total satisfaction. (3 marks)

To support MU 1/P1 > MU2/P2 > MU3/P3 > MU4/P4, she will have to spend on good 1 from
bundle b followed by good 2 from bundle c followed by good 3 from bundle c and finally
good 4 from bundle b. Since she is getting maximum utility from good one she should be
spending it all in that it will help to achieve maximum satisfaction.

(iii) If her income doubled, what will happen to her budget line and total satisfaction?
(2 marks)
Lily will again consider the utility and marginal utility that she receives from the goods
of all 4 bundles and seek her utility-maximizing choice on the new budget line. When income
increase, Lily can buy more goods, the budget line shift to the right, total satisfaction will
increase.

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