1. Introduction Explanation of economic concepts and theories exhibited Oligopoly a) Highlighting the Economic Concepts and Theories 1. Economic Concepts: i) Oligopoly Market ii) Demand and supply 2. Economics Theories: i) Law of Demand ii) Law of Supply Applicability in real world The Effects to Related Aspects Lessons Learned

1. 1. Introduction
The word economy comes from Greek which means “one who manages a household”.
Economics is the study of the allocation of scarce resources to meet unlimited human wants.
This means a society faces many decisions to allocate recourses such as land, building and
machines to produce goods for satisfaction of humankind.
Principles of Economics can be classified into two major branches which are
Microeconomics and Macroeconomics. Microeconomics is concerned with decision-making
by individual economic agents such as firms and consumers. Furthermore, Microeconomics
is a subject that helps us to gain knowledge economizing choices among alternatives uses
scarce resources. Take an example, UMW Holdings Berhad in 26 May 2016 had introduced
new plant for Toyota’s vehicles manufactory, it will cause a change in supply and shift in the
supply curve. There is a shortage for UMW’s substitute goods because demanders are unable
to buy all they wanted at the going price while UMW sells below market rate.
Shortage is can be defined as excess in demand. When a shortage occurs in the car
market, buyers have to wait in long lines for a chance to purchase it. While, if there are too
many buyers chasing for few goods. In long run, UMW able to earn profit and will raise their
prices without losing sales.

2. 2. Explanation of economic concepts and theories exhibited
Firstly, the economic concept exhibited in the articles is oligopoly market. Oligopoly
is a market dominated by only a few sellers, each offering a homogenous or differentiated
product. As there is keen competition in an oligopoly industry, there is certain barrier to entry
into or exit from it. This will encourage big company to imply zero-profit long run or short
term negative profit in order to get rid minor competitors. For this reason, in the long-run,
there are some types of barriers which may restrain new firms from entering the industry. For
instance, economics of scale and exclusive patents and licenses owned by only a few large
firms in the market, which results the small firms unable to provide the products with lowest
price compared to other big firms.
The limited initial sales with continuous losses forced these small firms from quitting
the market. Meanwhile, the big firms continue to growing bigger. Oligopoly was known as an
imperfectly competition as a firms in an industry have competitors, but at the same time, do
face so much competition that they are price taker. Besides, the firms are said to be compete
with each other. At the same time, they are mutual independent with each other over
controlling price. Each firm has to be aware of the reactions of their competitors in making
the price policy. Hence, they can always do adjustment on prices of product in order to attract
more customers and earns a long-run revenue.
The most significant example of oligopoly market in Malaysia is the
telecommunication services market. The market was dominated by three main
telecommunication firms: Celcom, Maxis and Hotlink. These firms were competing with
each other by introducing attractive mobile phone plans and promotions to make sure they
own the largest group of customer. These three firms comes together to control the prices of
telecommunication services in Malaysia. The other example of oligopoly in Malaysia is
automobile industry. The national automobile industries were dominated by several
manufacturers, namely Proton, Perodua and Naza. While, Proton and Perodua were currently
leading the national automobile market.

3. The other economics concepts applied in the articles is demand and supply. Demand
is defined as quantity consumers are willing and able to pay for a products or services. The
Law of Demand clearly stated that as the price of product increase, the quantity demand for
that particular product will decrease. There were also other determinants that can shift the
demand curve, such as the consumer income, price of related goods, expectation, taste of
buyers and the number of buyers. These determinants may shift demand curve left or right in
order to makes change in the demand of a good.
While, supply is the quantity producer are willing and able to offer for sales. The
Law of Supply were stated contrary to the Law of Demand, which the price of product
increase, the quantity supply of the goods will also increase. This is because the main purpose
of business is to maximize profits. In this case, the other determinants that shift may supply
curve left or right are the technology, input prices, expectation and the number of sellers.
When both demand and supply curve comes together, an equilibrium price and an
equilibrium quantity were formed at the point of intersection between these two curves. The
prices over or under the equilibrium price may cause surplus and shortage of products in the
market.

4. 3. a) Highlighting the Economic Concepts and Theories
1. Economic Concepts: i) Oligopoly Market
ii) Demand and supply
2. Economics Theories: i) Law of Demand
ii) Law of Supply

5. b)Applicability in real world
The automotive industry in Malaysia is a growing market, with customers worldwide.
Malaysia is the third largest South-East Asian automaker, outputting more than half a million
vehicles per year. Japanese automaker Toyota Motor Corporation had plan to build a second
factory in Malaysia as part of expansion to meet rising local demand and this threaten Proton
and Perodua which are the automakers in Malaysia. The new plant will focus on
manufacturing passenger cars, including energy-efficient vehicles, while its current factory
will churn out commercial vehicles. Before the Toyota new plant will build in Malaysia,
Proton, Perodua, Bufori and Naza are car manufacturer available in Malaysia. The new plant
of Toyota is expected to begin operations in early 2019 and begin enter Malaysia market
compete with Proton, Perodua, Bufori, and Naza. In 2019, Toyota will be one of the
determinants for price of car in Malaysia.
The car manufacturer in Malaysia is applying concept of oligopoly market. The
market for car manufacturer is competitive because there not only need to compete with car
manufacturer available in Malaysia but there also need to compete with foreign car which are
import to Malaysia such as Toyota, Nissan, Mitsubishi , etc. As car manufacturers are few in
oligopolistic industries, each firm is a “price maker”. Oligopoly is thus characterized by
strategic behavior and mutual interdependence. Automotive industry in Malaysia was
practiced strategic behavior. By strategic behavior, we simply mean self-interested behavior
that takes into account the reaction of others. Firms develop and implement price, quality,
location, service, and advertising strategies to “grow their business” and expand their profits.
For example, Toyota industry in Malaysia gives RM10000 discount for everyone who buy
new Toyota car for first year of new plant open in order to attract more local buyers. The
essence of an oligopolistic market is that there are only a few sellers. As a result, the action of
Toyota in the market causes a large impact on the profits of Proton, Perodua, Bufori and Naza.

6. The new plant of Toyota in the industry affects the marginal analysis of Proton,
Perodua, Bufori and Naza. Because add on one more seller, so that Proton, Perodua, Bufori
and Naza pay little attention about its own impact on the market price. That is, as Toyota
enters Malaysia market lead oligopoly grows in size, the magnitude of the price effect falls.
When the oligopoly very large, the price effect disappears altogether, leaving only the output
effect. In this case, Toyota, Proton, Bufori, Naza and Perodua increase the production as long
as the price is above marginal cost. The price approaches marginal cost, and the quantity
produced approaches the socially efficient level.
Demand is a schedule or a curve that shows the various amounts of a product that
consumers are willing and able to purchase at each series of possible prices during a specified
period of time. As above mentioned, Toyota industry in Malaysia gives RM10000 discount
for everyone who buy new Toyota car for first month of new plant open in order to attract
more local buyers. This will directly increase the demand of Toyota car. According to law of
demand, there is an inverse or negative relationship between price of car and quantity
demand of car. When the price of car falls, the quantity demanded of car rises. When the
price of car rises, quantity demanded of car rises. Toyota industry gives RM10000 discount
for customer directly decreases price of car, thus increase the quantity demanded of car.
The price of the average fixed cost used in production process has decrease after the
Toyota new plant has built in Malaysia for long term. As there can directly produce car in
Malaysia instead import from Japan which increase the cost of production. As cost of import
car is expensive which include transportation cost, government taxes and so on. Lower
resource prices reduce production costs and increase profits. When resources prices fall, firms
supply greater output at each product price. So, Toyota industry will increase their supply of
car as price of resources is low.

7. P
S1
S2
D2
D1
0 Q
Diagram 1: Demand and Supply Curve
MC
ATC PROFIT MC
LOSES ATC
MR1 D1 MR1 MR2 D1 D2
Diagram 2: Oligopoly curve

8. c) The Effects to Related Aspects
Gross Domestic Product, (GDP) can be measure by consumption expenditure,
investment expenditure, government expenditure and net exports. UMW Holding Berhad
planning to investment new plant in Malaysia which directly gives positive feedback under
investment expenditure for Malaysia’s GDP. For instance, the currency of Malaysia which is
Ringgit Malaysia will boom upwards, increasing in money circulation in market and high job
vacancies.
Furthermore, the positive impact for social. As the price of Toyota’s car sell below
market rate, this will attract more household to buy Toyota’s car as they has more purchasing
power and therefore inflation rate will decrease for national car and import car as high rate of
substitute car. Based on Malaysian Automotive Association, Top 5 Selling Passenger Cars,
the highest selling is Perodua followed by Proton, Toyota, Honda and Nissan. The differences
between Proton and Toyota are 8,415 units. For this reason, Toyota will able to beat
Malaysia’s national car in long run.
Moreover, the positive impact for environmental. There will be more development
around new plant of Toyota such as housing area, shop lot, etc. Another positive impact is the
manufacture car is more likely friendly to green environment. UMW Holding Berhad more
focus on build energy efficient vehicles, (EEV) which is require zero percentage of fuel.
Meanwhile, the negative impact is this might create urban heat island in long term as more
skyscrapers are built within the city.

9. 4. Lessons Learned
From the article that we have chosen, we learnt that the distinctive feature of an oligopoly is
interdependence. The action of the firms will affect each other and the market condition.
Therefore, the competing firms will be aware of a firm's market actions and will respond
appropriately. So, the oligopoly firms must take into consideration the possible reactions of
all competing firms and the firm's countermoves. For example, if a firm considering
increasing the price, it may want to know whether other firms will increase the price or hold
existing price constant. Thus, we learnt that oligopolists have to make critical strategic
decisions such as they need to plan and work out a range of possible options based on how
they think rivals might react.
Besides, we learnt that in oligopoly market has certain barrier to entry or exit it such as large
scale of economics, patents and copyright of products. This will protect sellers from any
copyright of products. In short run, sellers may earn low profit, losses or zero economic profit.
However in long run, sellers surely will earn high in profit as certain barriers of entry. This
will ensure the quality of products might be homogenous or a bit of different of products
based on company.
Moreover, we learnt that the law of demand states that the higher the price of a good, the
lower the quantity demanded. This is because when the price of a good goes up, the
opportunity cost of buying that good also goes up. As a result, household will naturally avoid
to buying a good that will cause them to forgo the consumption of something else they value
more. Furthermore, we also learnt that the higher the price of a good, the higher the quantity
supplied. This is because producers supply more at a higher price because selling a higher
quantity at higher price will increase their revenue.