SOLUTIONS TO PRICE CEILING AND PRICE FLOOR IN MALAYSIA

Buffer Stock Scheme

The prices of agricultural products such as wheat, cotton, cocoa, tea and coffee tend
to fluctuate more than prices of manufactured products and services. Solution to deals with the
fluctuations in prices is to operate price support schemes by using buffer stocks as a medium to
cope with the issues.

From the diagram, if supply increase and shift the graph to the right side. It will lead to fall
for the price to P2 which is below its targeted prices. So to maintain the price at its target price
(TP), government have to buy the surplus product at point Q1-Q2. This is the way to avoid
increasing in supply side and automatically keeps prices at target price. Government will be stored
and sold it when there is shortage in the economy.

A buffer stock scheme is a government plan which contribute sort of advantages towards
the farmers or producer to maintain and stabilize their income and welfare. Through this, farmers
or produces able to produce more productivity and grow legal crops. This will Ensure supply of
food are able to be supplied and fulfill the market demand. Overall it will Prevent farmers or
producers going out of business because of a drop-in price.

For example, in Malaysian rice trade and government interventions, as rice is the main
product that being consume by Malaysian, so Malaysia’s rice sector is highly protected by the
government through laws of Malaysia Act 522 Control of Padi and Rice Act 1994. This act includes
tariff and subsidies impose towards the citizen and trade of the product internationally.
Black market and Ways to control it in Malaysia.

A black market is a market whereby goods or services are traded illegally. The illegal
economy consists of the income generated by the production and distribution of prohibited goods
and services. For example, in Malaysia this issue related with product such cigarettes, food and
beverages, motor vehicles, electrical machinery and illegal wildlife trade. As well as film and
entertainment industries. These black-market activities are still wide spread into society and
cannot be capture by the authorities.

There is some solution to control the black-market activities. First, government

authorities must keep transparent and eliminate corruption in the institution. Weak
enforcement can be seen when Malaysia earn 4th spot as the biggest online piracy hub in the
world. Some rule of law may be weak or have less impact towards those who are guilty and this
motivate them to trade illegally which is more profitable than trade legally and obey with laws and
regulations. This is because although there is government plan to reduces the black-market
issues, but still lead to poor enforcement towards society and Malaysia economy.

Second, in terms burdensome trade regulations or domestic technical requirement

impose towards the importers and suppliers will result in reduced interest among the importers
and suppliers as it is too complicated to be fulfill. This will lead to less numbers of supplier to
supply the demand of certain product and force them to involve in black market instead.

Third, high taxes imposed by the government in its efforts to discourage demand for a
particular product usually encourages illegal trade to take action. For example, in Malaysia,
tobacco control is regulated under the Food Act of 1983 which restricts tobacco advertising, its
promotion and sponsorship, and governs its packaging and labelling. This planning is foreseen
as way to reduce numbers of smokers, but evidently failed to be enforce in Malaysia. Unfriendly
business regulations often become the burden or factors in reducing trade openness’s in
Malaysia.