Scarcity
arises because human wants are always more than what the available resources
can provide. According to The Economist, scarcity means that supplies of land,
labour, capital and enterprise are limited. To allocate the scarce resources
efficiently, market forces are operating through the price mechanism (The
Economist, 2013). Besides, government plays a minor role. In economic terms, it
means that economics resources available to satisfy all human wants and needs
are limited. Hence, the scarcity of
resources in relation to wants is referred to as the economic problems.
Land
resources refer to natural resources such as oil, mineral deposits, soil and
etc. These resources are natural and cannot be produces, therefore it is
limited. Besides, labour resources also one of the main reasons causes
scarcity. Lack of labour and labour skills in some industries causes the production
to be limited. Labour resource is combined with land and capital resources to
provide goods and services. Another type of resource that caused scarcity is
capital. Capital is tools or man-made things used to produce goods and
services. Some industries cannot produce large quantity of products due to lack
of capitals.
The concept
of scarcity is especially true in the case of petroleum as petroleum is going
to be scarce in future due to limited land resources. The latest measurements
confirm that the world’s supply of oil will drop below the level to meet global
demand (The Insider, 2010). According to Dr Birol (2009), one day we will run
out of oil and we have to leave oil before oil leaves us, and we have to prepare
ourselves for that day. Petroleum is a form of oil that is found underneath the
ground. It has high energy content, and because of that, it is often extracted
by humans to be processed for various applications such as gasoline and
plastic. Therefore, humans are suggested to save oil by using different ways.
Demand is
the quantity of a good or services that consumers are willing and able to
purchase at a particular price. The Law of Demand states that as price rises,
quantity demanded falls, ceteris paribus. The Law of Demand shows an inverse
relationship between price and quantity demanded. The term ‘quantity demanded’
was used to describe the change that occurred in the market. There are many
determinants that influence the demand for a particular good or service, such
as level of income, prices of substitutes and prices of related goods. A
movement along the demand curve takes place as a result of changes in the price
of the good itself. This is called change in quantity demanded. While a shift
of the demand curve takes place as a result of a change in some other factor
other than the price of the good itself. In this case, we say that there has
been a change in demand.
Another reason
causes the petroleum to become scarce resource is due to demand increase in the
consumers. An increase in the size of the population will result in an increase
in the demand for all products as there are now more buyers in the market. Nowadays,
more and more people using petroleum to generate mechanism, car and etc because
it is complementary and also necessity.
 |
| Diagram 1 |
From the
diagram 1 above, we can see that when the demand increases from D to D₂, the price also increases.
Price
elasticity of demand measures the responsiveness of the quantity demanded to
changes in price. Although the price of the petroleum slightly increase, the
demand curve will also be inelastic as oil are highly demanded (Riley, 2012). In
other words, most consumers agree to pay although the price slightly increases
from time to time.
 |
| Diagram 2 |
From the diagram
2 above, we can see that when the price of the petroleum increases from P to P₂, the
quantity demanded decreases from Q to Q₂. But, the percentage increase in price is higher than
the percentage increase in the quantity demanded. This means that the consumers
are not very responsive to the rise in price. The demand is said to be price
inelastic where PED has a value of less than 1.
Another
microeconomics concept is supply. Supply is the quantity of a good or service
that producers or firms are willing and able to sell at a particular price. The
Law of Supply states that as price rises, quantity supplied rises, ceteris
paribus. Besides, the Law of Supply also shows a positive relationship between
price and quantity supplied. An expansion or contraction in supply will only
occur when change in the price of the good itself. This is called change in
quantity supplied. While when the supply curve shift either to the right or
left, the term ‘supply’ is now used to describe the change, instead of ‘quantity
supplied’. For example, as the price of the petroleum rises, the quantity
supplied rises as well.
The few
factors causes the shift of the supply curve are seasonal influences, government
policies and initiatives, level of technology, business expectations and the
level of profits and etc. Higher growing season temperatures can significantly
impact agricultural productivity, farm incomes and food security (Battisti
& Naylor 2009). Seasonal influences are particularly important for
agricultural products. A good season will cause an increase in the supply of a
particular agricultural product. Other than that, unexpected events like a
prolonged strike at a factory will also cause supply to fail. Since wheat and
soy prices acreage allotment is replaced by corn, wheat and soy prices increase
when corn prices are high (McDonald, 2011). In addition, wheat and soy are the substitute
for animal feeds (McDonald, 2011).
Price
elasticity of supply measures the responsiveness of the quantity supplied to
changes in price. Factors that affect the price of elasticity of supply are
length of production period, level of excess capacity, ability to hold stocks
and availability and mobility of resources. For example, if the production
period is relatively long, the elasticity of supply is likely to be inelastic.
There are
four market structures – perfect competition, monopolistic competition,
oligopoly and monopoly. The markets structure that Astro in is monopoly.
Monopoly is defined as a single firm is a sole seller of a particular goods or
services for which there is no close substitutes. Astro provide direct
broadcast satellite Pay-TV service (Anon., 2012). Beside Astro, there is no
other firm or company that provides that kind of service. There is only one
firm within the market, therefore Astro keep raising their price from time to
time (Sidhu, 2011). Barrier entry is blocked due to Astro has the exclusive
license from the government for 20 years (Tan, 2012). Because of that, the Astro
is monopolist who can earns super-normal profit. The monopolist is a ‘price
maker’. While the monopolist is a price maker, it can determine either the
price or the quantity produced, but not both at the same time. They can
certainly set the price but must accept the quantity that buyers are willing to
buy at that price.
The other factor
that prevents new firms to enter the industry is the large amount of
investment. New firm need to has high set up cost (large financial and capital
requirement) such as purchase satellite, broadcasting rights, marketing
expenses, legislation (patent and copyright protection), high degree of
technological development and high degree of research and development to build
up their image, survive and successful in the market. Astro is also a natural
monopoly which means that single-firm produce most efficient products or
services. It is more cost effective to have only one firm other than having
more than one firm to compete with each other.
The disadvantages
of Monopoly are monopoly status is likely to breed complacency, inefficiency
and indifference towards consumers. A monopolist may also abuse its
considerable market power by preventing the entry of new firms or potential
competitors into the market. Other than that, Malaysian had been paying a higher
price for the channel subscriptions as compared to other country. In India,
there are some firms that offer up to 155 channels for only RM9.17 but in Malaysia,
Astro offered 50 channels at RM64.61 (Anon., 2011). It is much more expensive
than India. Besides that, Astro is also lack of incentive to innovate. When
there is rain, Astro subscriber cannot watch the movies smoothly. They need to
wait until the rain stops, the signal to receive the channel will just back to
normal. In 2008, Astro was assuring their subscribers that the problem would be
reduced by 30% after their migration of satellite from MEASAT 2 to MEASAT 3(Anon.,
2011). But they did not solve the problems as the time flow. They don’t afraid
that they have no customers as it is the only company in the market. Astro enjoys
high revenue as high as RM3.2billion (Sidhu, 2012). Beside, Astro also enjoy
the benefits of economies of scale. Astro's subscribers have reaches almost 3.1
million customers (Sidhu, 2012).
(1500
words)
References
Anon (2011) Astro’s monopoly has short-changed Malaysian TV viewers, Available
at:http://www.consumer.org.my/index.php/development/private-sector/479-astros-monopoly-has-short-changed-malaysian-tv-viewers (Accessed: 6th June 2013).
B.K. Sidhu (2011) Astro to increase
prices, Available at:http://biz.thestar.com.my/news/story.asp?file=/2011/6/24/business/8963931&sec=business (Accessed: 6th June 2013).
Gornall, J ,Betts, R ,Burke, E ,Clark, R ,Camp, J
, Willett, K , Wiltshire, A. (2007)Implications of climate change
for agricultural productivity in the early twenty-first century, Available
at: http://rstb.royalsocietypublishing.org/content/365/1554/2973.full(Accessed: 6th June 2013).
Heakal, R (2013) Economics Basis:
Supply and Demand, [online] Available
at:http://www.investopedia.com/university/economics/economics3.asp (Accessed: 8th June 2013).
McDonald, K (2011) Corn’s Domino
Effect, Available at:http://www.nytimes.com/roomfordebate/2011/02/15/is-the-world-producing-enough-food/corns-domino-effect (Accessed: 6th June 2013).
Prof. Goose (2007) The Economics of
Oil, Part I: Supply and Demand Curves,Available
at: http://www.theoildrum.com/node/2899 (Accessed: 6th June 2013).
Rilley, G (2012) Markets in Action
- Market for Oil, Available at:http://www.tutor2u.net/economics/revision-notes/as-markets-oil.html (Accessed: 8th June 2013).
The Economist (2013) Scarcity. [online] Available at: http://www.economist.com/economics-a-to-z/s [Accessed: 8 Jun 2013].
The Insider (2010) World's Oil Will
Run Out In Ten Years, Available at:http://www.theinsider.org/news/article.asp?id=0423 (Accessed: 8th June 2013).
