Johari: Govt to consider ceiling for oil price
KUALA LUMPUR: The setting of a ceiling is one of the options the government is considering to tackle the issue of escalating oil price. Second Finance Minister Datuk Seri Johari Abdul Ghani said in certain advanced countries, the governments would leave oil prices afloat, and the oil and gas (O\&G) industry players would determine them. "It is up to the government to set a ceiling which is deemed fair for all.
"When we (the government) have decided on the ceiling price, whether they (O\&G industry players) want to sell the oil at lower prices for promotional purposes, we leave it to them. This is one of the options we are looking at," he said. He said the government has also to be mindful whether the policy would be a problem for those living outside the city. "We are afraid the industry players would pay more attention in obtaining revenue from consumers in the city, and don't want to do the same for those in the outskirts. We have to be wary of this too," he said. On the reintroduction of fuel subsidies, Johari said, it would not be good for the Malaysian economy and were not sustainable.
"We are aware of the oil prices. We will monitor them. If they keep on increasing and if there is additional revenue, I think the government can consider a different form of assistance to the lower groups, but not those who are well-off," he said. He said the government would come out with a mechanism. "However, as of now there isn't a formula yet, but the government has already decided that it can't reverse this (subsidy) policy.".

Adapted from New Straits Times, Thursday Feb 9th, 2017.
a) Define price elasticity of demand.
(2 marks)
b) Based on the article above, identify and explain the degree of price elasticity of demand for oil.
(4 marks)
c) Using an appropriate diagram, explain the impact of the imposition of ceiling price on oil prices towards the market equilibrium.
(6 marks)
d) Briefly explain two (2) disadvantages of imposing ceiling price.
(4 marks)
e) Assume that oil market is free from government intervention. Based on your answer in (b), explain strategy should sellers adopt if they wish to increase their revenues.
(4 marks)