COST OF LIVING IN MALAYSIA'S LARGEST CITIES GROUP WORK ASSIGNMENT SEMESTER 2 2022/2023 LECTURER : DR ZURONI BINTI MD JUSOH PSP 3000 FAMILY AND CONSUMER ECONOMICS
Meet The Group NORZALIKHA FARHANA 211070 SYIFA NISA 211453 IFFA NURSYAHIRA 212560 NURUL IZZAH SARAFINA 211923
1 Introduction 2 4 3 5 Table Of Contents Literature Review How to solve? Suggestion & policy implication Conclusion
INTRODUCTION
Problem Statement The rising of goods and services is a problem that can eventually affect the wellbeing of household due to the rising cost of living that occurs. The average cost of basic needs and non-basic expenditures increased year over year, with basic needs spending outpacing non-need spending overall. The urban CPI reported a greater value than the rural CPI, indicating that urban households pay more for products than rural households (Asmat, 2022)
LITERATURE REVIEW
Analysis of Cost of Living in Malaysia: States and Urbanisation Comparison Cost of living issue is unavoidable for Malaysian households - rising cost of products and services (particularly basic necessities). Level of urbanization contributes to gaps between rural and urban areas. Families in urban areas may pay more for their essential needs than those from medium- and low-density regions. Suggestion: Government officials and policymakers should take basic needs spending into consideration. (Nor Asmat et al., 2022)
Factors Influencing the Basic Needs Budget Among the Middle Income Earners (Rusli et al, 2018) Middle-income group with relatively limited purchasing power, they will feel the effects of the rising cost of living depending on their basic needs as well as spending patterns. Some middle-income earners may also suffer from deficits in their budgets. It has become increasingly difficult for middle income households in the cities to accommodate their basic needs budget. Suggestion: Malaysia must have the ability to provide goods and services at lower cost and affordable prices to reduce the impact or minimise the rising cost of living or insufficient income
AN ECONOMIC ANALYSIS OF COST OF LIVING AND BASIC NEEDS BUDGET IN MALAYSIA With small monthly savings, the use credit cards to meet one's has contributed to the rise in household debt Given the higher and rising cost of living in the capital cities over time, to accommodate their basic needs budget and maintain a modest or the same standard of living as before is not easy Middle income household cannot afford to purchase a house (Rusli, 2017)
The Rising Cost of Living in Malaysia: A slow household income growth or increasing standard of living Malaysia faces the problem of high cost of living. Kuala Lumpur is ranked as the 96th most expensive city in the world according to the Worldwide Cost of Living Survey 2017. The problem has been worsened by the rapid rise in property prices over the last decade. This increase in the cost of living has a different impact according to the level of household income. A study from Bank Negara Malaysia (2013) found that lowincome households were the most vulnerable group to the issue of cost of living. They have also been identified as the most at-risk group in the wake of any economic crisis. (Mohd Aqmin et al., 2018)
HOW TO SOLVE? by using the economic indicator/ Economic theory/ Economic model
1.Consumer Price Index (CPI) measures the percentage change through time in the cost of purchasing a constant basket of goods and services representing the average pattern of purchases made by a particular population group in a specified time period. WAY TO SOLVE :- provides insights into inflation and changes in the cost of living over time Analyzing CPI trends can help identify the overall direction and magnitude of price changes so how can CPI help to solve cost of living?
Consumer Price Index (CPI) cont. Food and Non-Alcoholic Beverages Alcoholic Beverages and Tobacco Clothing and Footwear Housing, Water, Electricity, Gas and Other Fuels Furnishing, Household Equipment and Routine Household Maintenance Health Transport Communication Recreation Services and Culture Education Restaurants and Hotels Miscellaneous Goods and Services The items are classified based on Classification of Individual Consumption According to Purpose (COICOP), by twelve main groups as follows:
When the CPI rises, the typical family has to spend more dollars to maintain the same standard of living CPI serves as an important tool for understanding and monitoring changes in the cost of living over time Even if CPI does not directly reduce the cost of living issue, but Consumer Price Index (CPI) cont.
2. Fiscal Policy The use of government spending (G) and tax policies (T) to influence economic conditions A government policy that is implemented through changes in tax policy and government spending so that a stable economic situation can be achieved. or How to cope it by using fiscal policy ? Reduce the tax ( T) Use Expansionary Fiscal Policy ( dasar fiskal mengembang) Increase the government spending ( G) T G
Fiscal Policy cont. Tax Disposable income (pendapatan boleh guna) Subsidies is one of the component in government spending Benefit given to an individual, business, or institution, usually by the government. reduce the cost of essential goods and services Example : subsidies for food, housing, energy, or public transportation Subsidies that provide relief to individual and household Include reducing income tax rates, increasing tax exemptions or deductions, or introducing targeted tax credits for expenses such as childcare, education, or healthcare Reduce Taxes How Fiscal Policy can reduce cost of living ?
3. Aggregate demand and aggregate supply Aggregate supply and aggregate demand play a crucial role in determining overall economic conditions, including the cost of living. Aggregate Supply: Aggregate supply refers to the total amount of goods and services produced in an economy. Aggregate Demand: Aggregate demand refers to the total demand for goods and services in an economy.
how it can improve cost of living lower production costs lead to lower prices for goods and services. contribute to a more affordable cost of living. efficient production processes cost savings for businesses, passed on to consumers in the form of lower prices. improve productivity and aggregate supply. lead to higher wages, increased employment opportunities, and overall economic growth, positively impact the cost of living. Aggregate Supply: Productivity enhancements: Technological advancements: Labor market efficiency:
incentivize businesses to compete (offering better products at competitive prices). lead to price reductions and improved affordability for consumers. stimulate economic growth, leading to increased employment opportunities. individuals have more income to cover their living expenses improving the overall cost of living. increased consumer spending power afford a better quality of life and potentially experience a more manageable cost of living. Aggregate Demand: Increased competition: Economic growth and employment: Consumer purchasing power:
4. Wage growth and income inequality Monitoring wage growth can provide insights into the ability of individuals and households to keep up with the cost of living. wages not growing at a sufficient pace relative to inflation, it can result in affordability challenges. income inequality can highlight disparities that may impact the cost of living for different socioeconomic groups
how it can improve cost of living increase purchasing power When individuals earn higher wages, they have more disposable income to cover their living expenses. This increased purchasing power can alleviate financial strain, making it easier to afford essential goods and services, housing, healthcare, education, thereby improving the overall cost of living. Enhanced economic mobility Reducing income inequality and ensuring wage growth can foster upward economic mobility. When individuals have access to better job opportunities and can earn higher incomes, they have a greater chance to improve their socioeconomic status. enable individuals to move out of poverty or low-income situations, leading to a better quality of life and an improved cost of living.
SUGGESTION & POLICY IMPLICATIONS
Stabilizing the basic need price We have a high percentage of imported products because we cannot only depend on local production. Effectively control the import and export of products. For instance, when the price of cooking oil rises, the government needs to allow suppliers to import more cooking oil supplies from more affordable suppliers. We should optimize the use of areas that have the potential to be developed into local product production areas such as livestock farms, vegetable farms. However, the suggestion that made might cause a change in policy regarding the standard or requirement before importing basic need to our country.
Introduce regulations to control rental prices especially in large cities that will heLp to combat excessive rent price This will ensure that low income worker will be able to secure a house at an affordable price However, the quality of rental units may decline as the landlords will try to maximize their profits. Rent control measure
A regular review on the minimum wage is a must to ensure it is align with the current cost of living in the current economics situation Income inequality can be reduced as the gap between hign and low income become narrow. This will create a more equitable distribution of income and reduces the disparity Purchasing power for the low-income worker will increase. As they gain more, they can spend more on their basic necessities However, policymakers must evaluate the economic conditions carefully to avoid any negative impacts on sectors and businesses Increase minimum wage
CONCLUSION There are many issues that has arise due to the high cost of living in the cities in Malaysia By understanding the factor of the high cost of living, we can come up with solutions to ensure Malaysians' standard of living is at a good standard We hope, the government will take initiatives in handling this issues so Malaysians will not suffer from poor living standard
THANK YOU
References Ismail, Nor Asmat & Daud, Lynda & Mohd, Saidatulakmal & Samat, Narimah & Ridzuan, Abdul Rahim. (2022). Analysis of Cost of Living in Malaysia: States and Urbanisation Comparison. British Journal of Special Education. 37. 1019-1031. Rusli , L., Zakaria , B. and Nor Asmat , I. (2018) ‘Factors influencing the basic needs budget among the middle income earners in selected major cities in Malaysia’ , Jurnal Ekonomi Malaysia, 52(3). doi:10.17576/jem-2018-5203-3.