CONSEQUENCES OF PRICE FLOOR IN MALAYSIA

- MINIMUM WAGE

Wage rate

Excess supply Supply

W₁ minimum wage

W₀

Demand

Quantity of Labor
0 Qd Qe Qs

For a price floor to be effective, it must be set above the equilibrium price. If it’s not
above the equilibrium, then the market won’t sell below equilibrium and the price floor
will be irrelevant.

Based on the graph above, x-axis is the quantity of labor and y-axis is the rate of
wage. Equilibrium wage achieved when supply equals to demand at W₀ wage rate and
Qe quantity of labor. The minimum wage set by the government is called the price floor.
When the wage rate increases from W₀ to W₁ , the quantity of labor will decreases from
Qe to Qd. This means that there are surplus of labor force occurs in the market because
employer hire fewer workers. When the wage rate increases from W₀ to W₁, the quantity
supply of labor will increases from Qe to Qs. This is because workers are willing to work
at a higher pay. But, employers are discouraged to employ more workers at this price as
their cost of production has increased. The result is a surplus in the amount of labor
available when quantity supplied of labors exceeds the quantity demanded for labors.
Due to the increases of wages, there will be more people looking for jobs. This will
contribute to increase in unemployment rate since the employers have to pay higher
wages to the employees.

The implementation of minimum wage in by the government will bring pros and cons.
For example, unemployed people who lack of skills, abilities and experiences will
definitely take advantage to apply jobs in private sector and get at least RM900 as their
monthly wage while the labors who already receiving RM900 as their monthly wage
before the enforcement from the government would not be pleased with the idea of the
new labors getting the same wages as themselves when they have worked so hard for it.
There are also benefits of minimum wage implemented by government in Malaysia
which is higher contributions to Employees Provident Fund (EPF) as there will have
retirement savings of many Malaysians after they are retired. Other than that, minimum
wage policy can attract more Malaysians to enter the labor market in some sectors such
as plantation, agriculture, construction ans services to overcome the issue of over-
presence of foreign unskilled workers. Lastly, the minimum wage will benefit employees
and employers. By increasing the wages, this will improve the productivity of the
workers. Thus, the tendency of workers to quit their jobs and looking for another jobs will
be reduced.
CONSEQUENCES OF PRICE CEILING IN MALAYSIA

- PETROL

Price
Supply

P₀

P₁ Price floor

Shortage Demand

Quantity
0 Qs Qe Qd

For a price ceiling to be effective, it must set below equilibrium price. If it’s not below
equilibrium, then the market won’t sell above equilibrium and the price ceiling will be
irrelevant.

Based on the graph above, x-axis is the quantity and y-axis is the price. Equilibrium
price achieved when supply equals to demand at price P₀ and quantity Qe. When price
ceiling is set below the market price from P₀ to P₁, producers will begin to slow or stop
their production process causing less supply in the market. On the other hand, when
price decreases, the demand of consumers will increases as the lower prices creates
consumer surplus. The result is a shortage when the quantity demanded will exceed the
quantity supplied.

The resulting shortage of goods is the government begins rationing distribution to

restrict the demand of the consumers . Thus, the consumers won’t be able to utilize as
much good as they need. The shortage may be resolved where people have to wait in
the line for the product, and only those willing to wait will actually get it. This can be
troublesome to elderly, disabled and other people who cannot afford to stay in line for a
long time. Shortage of commodities will encourages black market where sellers might
provide the product only to family and friends, or those who willing to pay extra prices
higher than the price ceiling.