Economics intervention in the economic system. The

Economics can be defined as a research on how people in a society utilises limited resources to produce goods and services to satisfy their unlimited material needs in the best or most optimum manner. Also, economics is a social science study as it involves the interaction among the different groups in the society, such as households, firms and the government. Meanwhile, economic system is a regulated way practiced by a particular country in managing its economic, in which the way a country allocates resources and distributes goods and services within a society or a given geographic area.

It includes the combination of several institutions, entities, agencies, decision-making processes and patterns of consumption that compromise the economic structure of a specific community. Thus, it is a type of social system. All economic systems have three basic questions to ask: what to produce, how to produce and in what quantities, and who receives the output of production. There are four primary types of economic systems in the world: traditional, free-market, centrally-planned and mixed. Each economy has its strengths and weaknesses, its sub-economies and tendencies, and troubled history.

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Currently, Malaysia is adopting Mixed Economy System which includes a variety of private freedom, combined with centralized economic planning and government regulation. Mixed economy system is adopted adversely by most countries like Malaysia however the level of mixture varies depending on the level of government intervention in the economic system. The economy of Malaysia is the 3rd largest in Southeast Asia, and is the 38th largest economy in the world. Malaysian labour productivity is significantly higher than neighbouring Thailand, Indonesia, Philippines or Vietnam due to a high density of knowledge-based industries and adoption of cutting edge technology for manufacturing and digital economy. According to the Global Competitiveness Report 2017, the Malaysian economy is the 23rd most competitive country in the world in the period of 2017–2018.

Moreover, Malaysia is a member of the Asia-Pacific Economic Cooperation (APEC), the Association of Southeast Asian Nations (ASEAN), and the Trans-Pacific Partnership (TPP). Mixed economy system is a system that combines characteristics of traditional, free-market and centrally-planned in which both the private sector and the government make economic decision. It benefits from the advantages of all three while suffering from few of the disadvantages. A mixed economy system protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims.

In the mixed economy system, the price mechanism is used to determine what goods are to be produced and how much. However, the government intervenes in the market to ensure the provision of public goods and the stability and growth of the economy. Other than that, households and firms are free to own resources, businesses, and make purchase decisions.

Although, the government is involved in the economy to curb unfair business practices, ensure inequitable distribution of wealth and income, and promotes a stable economy. Hence, the purpose of government intervention in the economics system is to patch up weaknesses of the free-market system. The government applies directive power and rules such as collecting tax and providing subsidies. The same applies with the production of public goods that are less appealing to private bodies such as electricity supply, water supply and transportation. Besides that, the government also plays a role in stabilisation and economic growth. Many of the advantages of a mixed economy system are found in a free-market economy system. Firstly, it distributes goods and services to where they are most needed, while allowing prices to measure supply and demand. Second, incentives to be efficient.

Most business and industry can be managed by private firms. Private firms tend to be more efficient than government-controlled firms because they have a profit incentive to cut costs and be innovative. Third, it rewards the most efficient producers with the highest profit.

That means customers get the best value for their dollar. Next, a degree of quality. A mixed economy can create greater equality and provide a ‘safety net’ to prevent people living in absolute poverty. At the same time, a mixed economy can enable people to enjoy the financial rewards of hard work and entrepreneurship. Mixed economy system also will help to narrow the gap between the rich and the poor. Mixed economy system also suffers from few disadvantages which is a mixture of the disadvantages of the other types of economic system. It depends on which characteristics the mixed economy emphasizes.

First, excessive control by the government may discourage investment as intervention from government may lead to inefficient distribution of resources and goods. Second, tax collected can be high in order to maintain a huge government sector. Also, if the market has too much freedom, it can leave the less competitive members of society without any government support. According to the The Star news, it is said that Bank Negara has lowered Malaysia’s economic growth forecast for 2018 to 5% from its earlier estimate of 5.

5% – 6%. The country’s economy has expended below the 5.5%-level over the last two consecutive quarters. In fact, Malaysia’s domestic product (GDP) growth has been decelerating since the third quarter of 2017, when the economy grew by 6.2% year-on-year. Bank Negara stated that supply disruptions in the second quarter resulted in the slower economic growth. In a statement by the central bank, it states that private sector in Malaysia is the primary driver of growth as both private consumption and investment expanded strongly during the quarter. Malaysia, an upper middle-income country, has transformed itself since the 1970s from one based primarily on the export of raw materials to one that is among the strongest, most diversified, and fastest-growing in Southeast Asia.

But also, at the same time Malaysia is vulnerable to a fall in world commodity prices or a general slowdown in global economic. Nevertheless, since it became independent in 1957, Malaysia’s economic record has been one of Asia’s best. Real gross domestic product (GDP) grew by an average of 6.5% per year from 1957to 2005. Performance peaked in the early 1980s through the mid-1990s, as the economy experienced sustained rapid growth averaging almost 8% annually. Malaysia is a major producer of rubber and palm oil, exports considerable quantities of petroleum and natural gas, and is one of the world’s largest sources of commercial hardwoods. High levels of foreign and domestic private investment played a significant role as the economy diversified and modernized. By using the comparative advantages of a relatively inexpensive but educated labour force, well-developed infrastructure, political stability, and an undervalued currency, Malaysia has attracted considerable foreign investment, especially from Japan and Taiwan.

Utility is the satisfaction gained by consumers from consumption of goods and services, or it can also be defined as the ability of a good to provide satisfaction to its consumer. Meanwhile, utility maximisation is an economic concept that is, when individuals making a purchase decision, they strive to obtain the most amount of value possible, while at the same time spending the least amount of money possible. When combined, the consumer is attempting to derive the greatest amount of value from their available funds. With a single product, total utility is maximised when the marginal utility from the next unit consumed is zero (by assuming that the budget of the consumer allows this point to be reached.

) When multiple products are being chosen, the condition for maximising utility is that a consumer equalises the marginal utility per pound spent. The condition for maximising utility is: MUA/PA = MUB/PB where: MU is marginal utility and P is price.The theory of consumer behaviour uses the law of diminishing marginal utility to explain how consumers allocate their incomes. The utility maximisation model is built based on the following assumptions: (1) consumers are assumed to be rational, trying to get the most value for their money, (2) consumers’ incomes are limited because their individual resources are limited, (3) consumers have clear preferences for various goods and services, (4) every item has a price tag; consumers must choose among alternative goods with their limited money incomes.

Moreover, the utility maximisation rule states that consumers decide to allocate their money incomes so that the last dollar spent on each product purchased yields the same amount of extra marginal utility. In Malaysia, the resources are utilized efficiently as both government and private enterprises are utilizing them. The combined efforts between the government and private sector in Malaysia have led to rapid economic development and as the economic resources of the economy are used effectively and efficiently. Malaysia is ensuring that both the government and private obey to minimise the wastages of resources. Moreover, the people of Malaysia have the upper hand and also given more power when it comes to the quality and prices of the products and services provided. Since the economy in Malaysia is the mixed economy, thus outside traders are not welcomed at all to join monopoly market as these are in governmental control as only one firm is allowed to produce such goods. Some examples of monopoly markets in Malaysia are, petroleum (PETRONAS), electric supply (TNB), water supply (SYABAS) and many more. According to Merriam-Webster dictionary, price mechanism is a system of price determination and allocation of goods and services by free market forces.

In a deeper meaning, price mechanism is the interaction of buyers and sellers in free markets enables goods, services, and resources to be allocated prices. It is a market-based mechanism which refers to a wide variety way of to merge up buyers and sellers through price. Millions of economic agents who have no direct communication with each other are led by the price system to supply each other’s wants. In a modern economy the price system enables a consumer to buy a product he has never previously purchased, produced by a firm of whose existence he is unaware, which is operating with funds partially obtained from his own savings.

Price mechanism also restricts supply when suppliers leave the market due to low prevailing prices, and increases it when more suppliers enter the market due to high obtainable prices. Price mechanism is also known as price system.The price mechanism plays three important functions in a market which is the signalling function, rationing function and incentive function. Signalling function of the price mechanism means the changes in price provides information to both producers and consumers about changes in market conditions whether to enter or leave a market.

In signalling function, prices rise and fall to reflect scarcities and surpluses. If prices are rising because of high demand from consumers, this is a signal to suppliers to expand production to meet the higher demand. Thus, rising prices give a signal to consumers to reduce demand or withdraw from a market completely, and they give a signal to potential producers to enter a market. If there is excess supply in the market the price mechanism will help to eliminate a surplus of a good by allowing the market price to fall.

Contrarily, falling prices give a positive message to consumers to enter a market while sending a negative signal to producers to leave a market.The rationing function means when there is a shortage of a product, price will rise and deter some consumers from buying the product. Rationing also means distributing the scarce resources among those who are in need for it, even though each person may not get as much as he wants, and rationing happens when demand in a market outstrips supply. The effect of this is to discourage demand and conserve resources. The greater the scarcity, the higher the price and the more the resource is conserved.

In Malaysia, this situation can be seen in the market for oil. As oil slowly runs out, its price will rise, hence this will discourages demand and leads to more oil being conserved at a lower price.The incentive function means when the price of a product rises, quantity supplied increases as businesses respond.

An incentive is something that motivates a producer or consumer to follow a course of action or to change behaviour. Through their choices consumers send information to producers about the changing nature of needs and wants. When demand is strong, higher prices act as an incentive to raise output because the supplier stands to make a higher profit. When demand is weak, then the market supply contracts. The incentive function of a price rise is associated with an extension of supply along the existing supply curve.Most economies in a country are mixed economies, comprising not only a market sector, but also a non-market sector, where the government uses planning to provide public goods and services such as highway, buildings and maintenance, police protection, hospital, welfare programs and many more.

Thus, taxes are one of the major sources of income for government but also at the same time government provides subsidies for the public. Subsidies usually given by the government to retailers, consumers, farmers, or anyone as a way to promote production or utilisation.This situation can be seen in Malaysia, as Malaysia also collect taxes from companies and citizens and example of taxes implemented in Malaysia are Company Income Tax, Goods and Sales Tax (GST) which has been replaced by Sales and Services Tax (SST); implemented with effective from 1st September 2018. Meanwhile, the government provides subsidies mostly to farmers, fishermen, and the government also provide basic necessities such as rice, house, cooking oil and more, to those who are in needs.In Malaysia, as the country is adapting mixed economy system, government intervention also exists in control of prices on goods and services. The government would prefer to retain the price mechanism either above or below the equilibrium price although there will be no shortage or surplus at the equilibrium price. If the government sets a minimum price above the equilibrium, a price floor, there will be a surplus. Price will not be allowed to fall to eliminate this surplus.

The purpose of the price floor is to protect producers, especially farmers, whose products often are subject low price due to higher productivity which will increases output. However, on the other hand, if the government sets a maximum price below the equilibrium, a price ceiling, there will be a shortage. Price will not be allowed to rise to eliminate this shortage. The purpose of the price ceiling is to protect consumers, especially low-income people, who cannot afford to pay for products at higher market price.The success of mixed economic system started in Malaysia with the initiative of Central Government with the creation of National Development Plan. In Malaysia, the planning revolves around the Economic Planning Unit and other central agencies while the Malaysia’s experience in monitoring the implementation of national developments programmes and projects have contributed towards the success of this national socioeconomic development using mixed economic system.Since Malaysia is a mixed economy so it has a little degree of intervention of government for the markets.

The government does not have direct intervention in everything, but even it does have, the intervention may be indirectly. The market mechanism in Malaysia helps the private sector in deciding as to what commodities to produce and in what quantities. At the same time the private sectors need to compete with the government or public sectors. Also, the nature and quantities of commodities to be produced are also decided by the market mechanism.The problem of how to produce goods and services in Malaysia is also solved partly by the price mechanism and partly by the state. The profit gained determines the techniques of production in the private sector. The state will guide and provides various facilities to the private sector for adopting such techniques of production which may reduce costs and able to maximise output.

On the other hand, the problem for whom to produce is also decided partly by the market mechanism and partly by the central planning authority. In the private sector, it is the market mechanism which determines what goods and services are to be produced on the basis of consumer preferences and incomes.


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