Based on the news article, the price of chicken had increased on July 2013 due to the

weaker ringgit in Malaysia, higher setting of the minimum wage and the increase of the feeding cost
for chickens.
In this article, there is a theory from Microeconomics that is applied, which is demand and
supply. The definition of demand is the willingness and ability of a consumer to purchase a
particular good or service at a certain price level (Moffatt, 2014). Supply is defined as the quantity
of a good or service that a firm is willing and has ability to produce at a certain price level (Moffatt,
2014). Besides the law of supply, there are other factors that influence the supply curve to shift like
price of inputs, the changes of technology, the cost of substitutes involve in production and
expected of future price. These other factors will influence the supply curve to shift. According to
the article, the setting of minimum wage had increase. The FLFAM members pay the farm
RM600 per month, but due to the implementation of minimum wages policy, it had increase 50%,
which was RM900. Besides that, the cost of feeding the chicken had also increased. These two
factors are included in the price of inputs and had caused the price of inputs to increase from
RM4.67 to RM5.12. This will cause the supply curve to shift to the left as shown in the graph
below.





Price
S
2
S
1



Quantity
Graph 1
Hence, the price of the chicken had increased from RM6.00 per chicken to RM6.50 per chicken.
Based on the law of demand, it states that at ceteris paribus, which is when everything is
hold at constant, the increase in price of a particular good or service will cause the decrease in
quantity demanded of the good or service (Moffatt, 2014). In this situation, the price of the
chicken increased causes the quantity demanded for chicken decreased. The graph below shows
how it occurred in this situation.






However, in July 2013, it was Ramadhan fasting month and Aidilfitri celebrations, which was
festive season during that period; the demand for chicken increased. When the demand is high, it
causes the price to increase from RM6.50 per chicken to RM7.70 per chicken. When the demand
increases, it causes the demand curve to shift as shown in the graph below.



Price
S
2
S
1
P
2
P
1

Q
2
Q
1
Quantity
Graph 2






The price had to increase as well. In other words, the cost of production increased influence the
supply curve to shift and the festive season had influence the demand curve to shift. It is shown in
the graph below.









Price



D
1
D
2
Quantity
Graph 3
Price
S
2
P
3
S
1
P
2
P
1
D
1
D
2

Q
2
Q
3
Q
1
Quantity
Graph 4
Other than demand and supply, the price elasticity of demand is applied in this situation.
Price elasticity of demand is defined as how responsive the quantity demand is to the changes in
the price (Wells, 2014). To identify the elasticity, the percentage of change in quantity demand is
divided by the percentage of change in price.



Based on the article, the chicken is inelastic during the festive season because consumers continue
to purchase it although the price increases. Assume that it was not during the festive season,
presume that when the price is RM6.00, the quantity demand is 100 chickens; after the price
increase to RM6.50, quantity demand is 80 chickens.







Price of elasticity of demand:

= (-0.2222 100%) (0.08 100%)
= -22.22% 8%
= ||
= 2.78



Price Elasticity of Demand:
According to the calculation above, the percentage of change in quantity demand is larger than the
percentage change of the price; the price elasticity of demand is larger than 1. Hence, the chicken
is elastic. However, the article states that when the price increased, it was during the festive season.
Therefore, the demand decrease and then increase. The price was increase again to RM7.70 due
to the festive season. Assume that the demand is suppose to decrease but when it is during the
festive season, the demand increase to 90 chickens, 10 units more than 80 chickens when the price
was RM6.50.





According to the calculation above, the percentage of change in quantity demand is smaller than
the percentage change of the price; the price elasticity is smaller than 1. Hence, it is shown that
chicken is inelastic during the festive season; so the price can be increase.
As a conclusion, the theories that are applied in the article are demand and supply and
price elasticity. Due to the weak ringgit, increase of minimum wage and cost of feeding, it causes
the price of chicken to increase. Other than the price of inputs, the festive season had also cause
the price to increase. In the elasticity theory, chicken is elastic but when it is during a festive season,
the chicken will be inelastic because of the demand. Therefore, the price can increase higher in
order to maximize the profit.
Price of elasticity of demand:

= (0.1176 100%) (0.169 100%)
= 11.76% 16.9%
= 0.7