The malaysian government can correct price mechanism defects

Malaysia, a assorted economic system efforts to unite the advantages of Free Enterprise System and the Central Command System. The monetary value mechanism is allowed to run but in some instances the monetary value mechanism fails or works against public involvement. Identify the ways by which the State can step in to rectify the defects.


Economic system can be defined as a system which so organize and structures the resources that are available in a state or province. Economic systems are the subdivision of economic sciences that surveies the methods and establishment by which societies determine the ownerships, way, and allotment of economic resource. All societies faced with the job of scarceness. There are 3 types of economic system which are known as Free Enterprise System, Centrally Planned or Command System and Mixed Economy System. Briefly each economic system can be described through the intercession of authorities which differs in each of the several economic system.

In general, the authorities intercession and grade of control in each system differs which besides includes how they tackle economic issues. Free Enterprise System has really low degree of authorities intercession where all economic determinations are taken by single families and houses with no authorities intercession. In a free market, persons are free to do their ain economic determinations. For blink of an eye, consumers are free to make up one’s mind what to purchase with their incomes and to do demand determinations. This economic system can react rapidly to altering demand and supply conditions. However, markets do non accomplish maximal efficiency in the allotment of scarce resources, and authorities feel it is necessary to step in to rectify this and other jobs of the free market such as, competition between houses, power and belongings are unevenly distributed, the patterns of some houses are socially unwanted, leads to macroeconomics instability, and eventually there is a ethical expostulation in free market.

Centrally Planned or Command System is a to the full authorities controlled based economic system system where the monetary value mechanism is to the full in control by the authorities which can be either the province authorities or parliament and is normally associated with a socialist or communist economic system, where land and capital are owned by the authorities. Even though these economic system distribute goods and services straight by a system of rationing or it may make up one’s mind the distribution of money incomes and allow persons to make up one’s mind how to pass them.

Mixed Economy System where the monetary value mechanism rights are hold by both the populace and authorities, moreover determinations are by the authorities which will be based on the populace & A ; acirc ; ˆ™s demand. Assorted economic system is where the grade of authorities intercession and the populace are at balance


As we all know Malaysia is a assorted economic system system. In this economic system, the grade of authorities intercession and the populace are at balance. It is based on the free endeavor rule there is some other signifier of direct intercession and control by the authorities. It can be besides defined as determinations are made partially by the authorities and partially through the market. In a assorted economic system system, most economic determinations are made by the market and several economic determinations are in custodies of the authorities which are largely due to scarceness for an illustration determinations on crude oil monetary values, oil monetary value, sugar monetary value and others. This is every bit such as the market on these scarce goods and services are really much protected and authorities intercession begins as they are in duty to get the better of scarceness. Other authorities intercession in Malaysia economic system are in banking and dealing based countries where the state & A ; acirc ; ˆ™s bank known as BANK NEGARA is to be known as the chief caput Bankss for all commercial Bankss in Malaysia and each and every commercial Bankss records need to be transmitted in the Bank Negara.

Despite, authorities of Malaysia besides intervene in new market constitution where the authorities endorses a Barrier of Entry for the new market ownerships which is really much in demand to be required to be able to set up any concern or market in Malaysia. Barriers of Entry in Malaysia includes of enforcing revenue enhancements on goods, the control of monetary value, forbiding from selling certain goods or services and many more. These Restrictions by the authorities are to guarantee to retain a balanced and good turning economic system. Although it & amp ; acirc ; ˆ™s a assorted economic system system, and public are partially in responsible to do economic determinations, authorities intercession are really high for the undermentioned factors involved in economical growing of a state.

2.3 Barriers OF ENTRY

Barriers of entry can be described as a authorities implemented regulations and ordinances which in demand to be fulfilled in order to come in a market or set up a concern in the several authorities state. Barriers of entry in Malaysia are really idealistic where the authorities has set the footings harmonizing to the life manner and criterion of life in Malaysia. Any New market or concerns that are in motor to set up or fall in a market in Malaysia are in demand to conform to the demand of the barriers of entry. In short, barriers of entry can be defined as obstruction to market and concern which disallow certain concerns or markets which does non conform to the stated regulations and ordinances. Barriers of entry in Malaysia includes as stated below:


As we all know it is illegal to sell certain goods and services, and yet many of these goods have booming markets. Billions of money is spend of alteration custodies worldwide in the illegal drugs, weaponries and erotica trades. Cocaine is illegal, nevertheless other drugs such as baccy and intoxicant are charged high revenue enhancement charges to cut down the ingestion. The ground given by authoritiess for maintaining drugs illegal is that to direct out of import messages to society. Taxing something, by contrast implies that the merchandise is acceptable. Besides when revenue enhancements were to be set at a really high rate is adequate to cut down legal ingestion to a politically acceptable degree.


In Malaysia, outside bargainers are non welcomed to fall in monopoly market structured economic system as these are in governmental control as merely one house is allowed to bring forth such goods which can non be subsidized as such houses entry is impossible. Examples of markets that are monopoly in Malaysia are Petroleum market ( PETRONAS ) , electric supply ( TNB ) , H2O supple ( SYABAS ) and etc.


The authorities controls over the monetary value of goods and inputs by taxing or subsidising goods or services or even by straight commanding the monetary value of the market. Governments such intervention are to derive comparative income from income revenue enhancements to be able to give concern to the public assistance payments and besides societal services. As authorities imposes revenue enhancements on goods and services, these indirect revenue enhancements as they called includes revenue enhancements for goods like coffin nails, gasoline and alcoholic drinks. Indirect revenue enhancement is a revenue enhancement on the outgo on goods. These revenue enhancements are non paid straight by the consumer, but indirectly via the Sellerss of the good. Here the authorities besides controls most commercial Bankss in term of loan involvement rates which are monitored by the Malayan Bank known to be Bank Negara. Despite, the authorities has a direct control over the foreign exchange rate.


In Malaysia, authorities intercession besides exists in control of monetary values on goods and services. The authorities would prefer to retain the monetary value mechanism either above or below the equilibrium monetary value although there will be no deficit or excess at the equilibrium monetary value. If the authorities sets a minimal monetary value above the equilibrium, a monetary value floor, there will be a excess. Price will non be allowed to fall to extinguish this excess. However, on the other manus, if the authorities sets a maximal monetary value below the equilibrium, a monetary value ceiling, there will be a deficit. Price will non be allowed to lift to extinguish this deficit.

2.5.1 Setting A MINIMUM ( HIGH ) Monetary value

Government sets minimal monetary values to forestall them from falling below a certain degree. This is because the authorities wants to protect manufacturers & A ; acirc ; ˆ™ incomes. In the factor of rewards ( the monetary values of labour ) , minimal pay statute law can be used to forestall workers pay rates from falling below a certain degree.

2.5.2 SEETING A MAXIMUM ( LOW ) Monetary value

This is to forestall them from lifting above a certain degree. In war clip, rising prices, crisis or times of dearth, the authorities may put maximal monetary values for basic goods so that hapless people can non afford to purchase them. These ensuing deficits nevertheless create farther jobs.


In every state the authorities do subsidise certain goods and services which are high in monetary value and non low-cost by the hapless community, this is to avoid the construct of rich going richer and hapless going poorer non being able to populate a standard live with certain needed day-to-day basic things. Governmental subordinates are usually in formation of either merchandise or service. Like all other states, Malaysia every bit good have good understood the state troubles and subsidise certain goods and services which are high in monetary value and are produced chiefly for rich people. Example of subsidised goods and services in Malaysia are like gasoline, NGV gas, sugar and many more.

Despite subordinates, Malaysia besides has authorities intercession through their authorities cordial reception installations where populace are treated for their medical issues at a really low monetary value which begin with merely RM1.00 for enrollments. This installation by authorities has an absolute 0 % net income to the house which is wholly supported by the revenue enhancements income which the authorities earns through revenue enhancement.

In other manus, authorities intercession besides exist in Malaya when it comes to the issue of pollution, environment and planetary heating where the authorities sets regulations and ordinance to be implemented by all organisations and public to guarantee of a safe life environment globally and to lend to maintain the female parent Earth safe. Here, authorities intervene with connoting regulations of cut downing electricity wastage, H2O wastage and besides cut down the usage of plastic bags in shopping composite. The executions of cut downing the usage of plastic bags in shopping composite throughout Malaysia have given a existent good feedback where every Saturdays are to be a twenty-four hours without plastic bags in any shopping composite.


Monetary value mechanism is a market based mechanism which refers to a broad assortment ways of to unify up purchasers and Sellerss through monetary value. Buyers and marketer usage monetary value as a signals to pass on their wants, and so interchange money for goods or resources, or frailty versa. It is a manner of transmit the consumers and the houses each other through their consequence on monetary value mechanism. The monetary values that consequences are the monetary values that houses and consumers have to accept.

Surplus Supply

Monetary value Market equilibrium point

Deficit Demand


Monetary value mechanism works as follows. Monetary values will react to deficits and excesss. Market equilibrium point occurs when the measure of demand and supply are equal and intersect each other. Equilibrium monetary value is a monetary value where the measure demanded peers the measure supplied. It is the monetary value where there is no deficit or excess will happen. Surplus is where the measure of supplied over the measure demanded when the monetary value is above the equilibrium. Deficit occurs when the measure demanded is over the measure supplied when the monetary value is below the equilibrium. Here, we can specify supply as the willingness of the marketer to sell a good or services. In other can be said as the measure of any good or services offered for sale at a given monetary value over a period of clip in a given market. At the equilibrium monetary value, there will be no deficit or excess. The equilibrium monetary value nevertheless may non be the most desirable monetary value. The authorities, hence, may prefer to maintain monetary values above or below the equilibrium monetary value. If the authorities sets a minimal monetary value above the equilibrium, a monetary value floor, there will be a excess. Price will non be allowed to fall to extinguish this excess. However, on the other manus, if the authorities sets a maximal monetary value below the equilibrium, a monetary value ceiling, there will be a deficit. Price will non be allowed to lift to extinguish this deficit. First of wholly, the authorities intercession in the market can make positive and negative consequences. Since Malaysia is a assorted economic system so it has a small grade of intercession of authorities. The authorities does non hold direct intercession in everything, but it may be indirectly.

2.8 Decision

As decision, Malaysia patterns assorted economic system system which means the grade of authorities intercession and the populace are at balance in market determination doing. This economic system system is largely based on free endeavor rule but it differs as there is some signifier of direct intercession and indirect authorities intercession. The grade of authorities intercession on determination doing in market is depending on the scarceness of the resources used in the specific market for illustration the authorities control in crude oil market in Malaysia is really high comparison with the car market. However, the author concludes that the monetary value finding in Malaysia is depending on the grade of the scarceness of resources in the market and authorities intercession is largely in the issue of revenue enhancement and scarce resources. Overall, hereby the authorities does non hold direct intercession in everything but it may hold indirectly through revenue enhancement.