What
comes to your mind when you hear about the Price Ceiling ? ceilings are normally associated with something high, but in the case of economics, it is something low. The price ceiling is in fact, an
economic term which is a regulation imposed by the government that makes it
illegal to charge a price higher than a specified level. The implementation of a price ceiling allows
consumers to purchase the basic or essential items that were previously unaffordable at a lower price.
Applying
this concept, the Malaysian government has implemented a price ceiling on low
cost homes starting from the year 2010. The implementation of this price
ceiling is aimed to ensure that people from the lower income group have one of
the basic necessities, which is shelter. The government has set the price
ceiling of low income houses at RM42,000 in Peninsular Malaysia and RM50,400 in
Sabah and Sarawak.
Furthermore,
in conjunction with the 10th Malaysia plan, the government has planned to
develop more houses at an affordable price, involving private developers. The
target is to have 161,000 affordable homes, of which private developers would
build 83,000 units while the rest would be built by the government.
Due
to the implementation of this price ceiling, the legal maximum price of low
income houses set by the government is lower than the market equilibrium price.
This is done in order to protect the interest of consumers by preventing the
producers from charging prices that are unaffordable by low income consumers.
From
the graph, we can see that the price ceiling for low cost houses in Sabah and
Sarawak ( approximately RM50,000 ) is set at a level that is lower than the
equilibrium price of low cost houses. Thus, all producers of low income houses
within that region is not allowed to sell those houses for any price exceeding
the price ceiling.
The
government has implemented this price ceiling in order to help those with low
incomes afford to buy houses in our current economy where the prices for
property seem to be constantly increasing.
This
price ceiling increases everyone's ability to buy low cost houses. Thus, one of the
implications of the price ceiling is an increase in demand for low cost houses.
However, with the price ceiling implemented, the production of low cost
houses will be less profitable, and thus producers will be discouraged to
produce them, causing supply to decrease. This in term will result in the
demand for low cost houses exceeding the supply, thus causing a shortage to occur.
A
potential problem that could occur from the shortage is an unbalanced
distribution of the low cost houses. In order to counter this problem, the
government should adopt a rationing system. For instance, a person is only
allowed to own a certain number of low cost houses. Therefore, everyone has a fair
chance to buy a low cost house even though there is a limited supply.
On
a side note, the government is allocating half of the development of these
houses to the private sectors . This will allow an equivalent distribution of
profit between the private sector and the government.
References:
Written by: Penny Low (0315422)
References:
Wouldn't the shortage that would occur eventually lead to black markets where low cost houses are sold illegally for prices that are higher than the price ceiling? Then it wouldn't help those with low income much either way.
ReplyDeleteWell, that's a fair point. However, on the legal market, the prices would still have to conform to the price ceiling. This way, even though some houses may be sold on the black market, people with low incomes can still benefit from the lower prices in the legal market.
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