Syed Jazil Hussain ECW1101 28900766
The Impact Of Covid-19 On The Face Mask Market
In Malaysia.
Name: Syed Jazil Hussain
Student ID: 28900766
Due date: 29/05/2020
Academic staff: Dr. Grace Lee
Unit: Introductory micro econometrics, ECW1101
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Syed Jazil Hussain ECW1101 28900766
Contents
1: Introduction..........................................................................................................................3
2: Impact of covid-19 on face masks:........................................................................................3
2.1: Demand:........................................................................................................................3
2.2: Supply:...........................................................................................................................3
2.3: Other factors:.................................................................................................................4
2.4: Overall impact:...............................................................................................................4
3.0: Challenges:........................................................................................................................4
3.1: Price surges:...................................................................................................................4
3.2: Shortage in market:.......................................................................................................4
3.3: Negative externalities:...................................................................................................5
4.0: Proposed solutions and its effectiveness:......................................................................5
4.1: Price ceiling:...................................................................................................................5
4.2: Import and ban of export:.............................................................................................6
4.3: Other manufactures making masks:..............................................................................6
5.0: Positive externality:...........................................................................................................6
6.0: Conclusion:........................................................................................................................6
7.0: References:........................................................................................................................8
8.0: Appendix:...........................................................................................................................9
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1: Introduction
An outbreak of the covid-19 disease or coronavirus established a global health crisis
which had an impact on everyone is lives regardless of where they are from and
what they do. This pandemic led to many laws being implemented such as the
closure of malls/restaurants as well as requiring maintaining social distancing by
refraining from what people would do during their daily lives. The World Health
Organization (WHO) declared that face masks with proper hygiene are the most
effective ways of preventing the transmission of covid-19, but this became a worry
due to the lack of face masks available at the time with the universal facemask
wearing policies, which would put a load on the supply of facemasks. A major
concern with this pandemic is the drastic decrease of income for each household
because of the exponential unemployment rates. The following essay will discuss
how the supply and demand of face masks in Malaysia is affected due to the covid-
19 pandemic, as well as the challenges caused by these market changes and the
plausible solutions to minimize the problems associated with the face mask market
in Malaysia. Followed up with a brief conclusion summarizing the points mentioned
in this essay.
2: Impact of covid-19 on face masks:
2.1: Demand:
WHO reported that the spread of covid-19 drastically increased the demand for face
masks because they have become mandatory in Malaysia and people tend to buy in
bulk. Also, surgical face masks are only reusable a few times before having to be
replaced. A demand curve is a graph that shows us the quantity demanded at a
certain price. Figure 1.1 shows us that the demand before covid-19 was D1 but
because of the pandemic, the demand curve shifts to the right to D2 along the
supply curve. Normally, a decrease in income would shift the demand curve to the
left, but because face masks are a necessity, the decrease of income does not have
an effect on the demand of face masks. The population to likely buy rises and future
expectations about covid-19 encourages buying, therefore, demand shifts from D1 to
D2. The demand market consists of the customers buying the face masks either for
themselves or for others.
2.2: Supply:
Initially the supply of face masks was sufficient for the demand of face masks in
Malaysia before covid-19. Although, because of the drastic increase in demand
during the pandemic, the shift of the demand curve to the right caused the supply
curve to also change upwards along the same supply curve as shown in Figure 1.1.
This tells us that the supply of face masks has to increase to match the demand, our
supply curve slopes upwards because when the price increases, the producers are
able and willing to provide an increased quantity of face masks. The supply side of
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the market consists of the manufacturers making the face masks as well as retailers
that help sell and distribute face masks i.e guardian.
2.3: Other factors:
Taxes are treated as costs by businesses and the burden of tax falls on the side of the
market that is less elastic which in this case is the demand side because face masks
are necessary goods during the pandemic, therefore, a large proportion of the tax
would fall on people buyers of face masks and would increase the price as shown in
figure 1.2. However, the government of Malaysia exempted manufactures from sales
tax in an effort to lower the prices of the face masks making them affordable.
Importations of face masks have also been spared from duty that is normally paid
when importing goods into Malaysia. This was done by the Malaysian government to
reduce the shortages caused by the high increase in demand as quoted “There is no
increase for a price increase as the government agrees to remove import task masks
to further reduce the price”. The Malaysian government had also introduced a price
ceiling set at RM1.5 per face mask to combat the exponential increases of price that
retailers were putting on face masks (Will be discussed in detail in section 4.1)
2.4: Overall impact:
sum up everything including the change it has, what type of good is it, long
term/short term.
quantity increases, price also increase. The overall impact of covid-19 on the face
mask market in Malaysia can be represented by the graph in figure 1.3. Figure 1.3
shows us the shift in demand curve to the right from D1 to D2 along the supply curve
causing a change in supply. These changes cause the quantity supplied and
demanded to increase from Q1 to Q2, therefore, also increase the price from P1 to
P2. The equilibrium in the market also changes from (Q1,P1) before covid-19 to
(Q2,P2) after the pandemic. Elasticities of demand in this market are very low in the
long run and almost inelastic in the short run, regardless of the price, people will
purchase face masks because of laws implemented by the government. As shown in
figure 1.3, the demand still increases as the price increases.
3.0: Challenges:
3.1: Price surges:
One of the main challenges the Malaysian government had to face was the price
surges of face masks by retailers that were selling into the market. There are many
retailers that are trying to profit off of the pandemic by setting the price of face
masks above the market price, for example a private hospital in Malaysia was fined
RM200,000 because they were selling customers one face mask for RM11.20 even
though the price ceiling was set at RM1.5 per mask (Bernama, 2020). The
government has to face these challenges to prevent them from increasing the overall
market prices.
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3.2: Shortage in market:
Another challenge the government has to face is the shortage of face masks supplied
into the market by the manufacturers and retailers versus the high amount of face
masks demanded domestically. Panic buying of masks increases due to daily number
of cases and deaths increasing and the universal mask wearing policies which results
in a shortage of masks (econlife.com, 2020). The government also has to prioritize
N95 masks to healthcare workers in hospitals and has to make sure they are
allocated evenly rather the general population purchasing them all. In addition to
the demand of face masks, a price ceiling increases the shortage of face masks as it
decreases the quantity supplied by manufacturers as seen in Figure 1.4.
3.3: Negative externalities:
Moreover, some other challenges the government has to overcome during a
pandemic is the negative externalities from the face mask industry. Some negative
externalities incurred are the panic buying of face masks which reduces the supply
for others i.e healthcare workers, another negative externality is the mental health
impact the pandemic has on people in Malaysia. Lastly, single use face masks cause
significant harm to the environment, these face masks are disposed of in the water
where marine life is affected since plastic does not disappear but breaks down into
micro-plastic, this is then passed on to fishermen that catch the fish, creating health
problems for people that consume the fish. Figure 1.5 shows us that the marginal
benefit decreases for each incremental face mask produced. Demand curve is also
known as marginal benefit and the supply curve is known as the marginal cost. Face
masks have added costs that are not factored into the initial marginal cost curve
(S1); therefore, a new supply curve is made (S2) which includes cost of the suppliers
plus the cost of society. This change increases the price from P1 to P2 and decreases
the quantity from Q1 to Q2. This tells us society will keep on getting benefits until
the new equilibrium (E2), after that point, the negative externalities marginal cost of
each incremental face mask is higher than the marginal benefit.
4.0: Proposed solutions and its effectiveness:
4.1: Price ceiling:
To prevent the price surges by retailers in Malaysia, the government had introduced
a price ceiling. Medidata Sdn Bhd is the sole manufacturer of face masks for
government hospitals in Malaysia and was not affected by the reduction in price
ceiling from RM2 to RM1.5 which helped increase affordability (Su-Lyn, 2020).
Medidata Sdn Bhd is a manufacturer that has monopolized the market and has no
competition in the production of face masks. The reduction of price helps sell
additional output so the marginal revenue on its additional units sold is less than the
price because it gets less revenue from selling previous face masks as well. Figure 1.4
shows how price ceiling affects the market, the addition of a price ceiling reduces
price from P1 to P2 (price ceiling), this however causes quantity supplied (Q1) to be
much less than quantity demanded by Malaysians (Q2) hence creating a shortage of
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face masks in the market. The government had also subsidised retailers that had
purchased face masks when the price ceiling was initially RM2 but then reduced to
RM1.5 (Su-Lyn, 2020).
4.2: Import and ban of export:
Imported from china, banned export of face masks. The price ceiling implemented
had caused shortages in the face mask market in Malaysia, to help solve this
problem, the Malaysian government started importing face masks from the leading
exporters of face masks and had imported 10 million face masks from China (The
star online, 2020). Due to minimal support given by the government in the
production of face masks in countries such as China, it is beneficial for them to sell
and export face masks to other countries such as Malaysia. The price ceiling acts as a
disincentive to sell in the local market in Malaysia because of the higher prices
overseas which is why the Malaysian government executed a strict ban of exports on
face masks produced in Malaysia (The star online, 2020). This is to ensure a sufficient
of supply of face masks for Malaysians during the pandemic. The importations of
face masks and exportation bans are the most efficient way of reaching the high
domestic demands of face masks in Malaysia. The importation of face masks from
China drops domestic price in Malaysia so that it is equal to the world price.
4.3: Other manufactures making masks:
Another effective solution is getting manufacturers of different goods in Malaysia to
start producing face masks. The world’s biggest maker of medical gloves, Top Glove
Corp Bhd, plans to start producing face masks to meet the high demand of face
masks in Malaysia. The company has a facility ready which a production capacity of
110 million masks a year, this is done to help with the high surge in demand caused
after the pandemic (Reuters, & Reuters. 2020).
5.0: Positive externality:
The production of face masks in Malaysia also has positive externalities. Firstly,
droplets from sneezing or coughing may travel up to 6 feet which plays a major role
in the transmission of covid-19 but wearing a mask in public prevents this and it
therefore a social good as it benefits everyone and reduces the number of people
being admitted into the hospital because of covid-19. The production of face masks
in Malaysia also benefits the technology side of things because of the numerous
advancements made to produce the most efficient mask, this helps to benefit
research (Okyere, M. A., 2020). Figure 1.6 shows the upward shift in the demand
curve when we include the benefit to society D2 which is the marginal benefit plus
external benefit, this also means that the there is no deadweight loss (purple area).
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6.0: Conclusion:
In conclusion, the face mask market saw a drastic change in demand and supply after
the covid-19 pandemic. The increase in deaths worldwide boost the sales for the
market as people get more wary of the pandemic, this market became a necessity
and had a lot of challenges which were all solved by the government. The production
of face masks also had negative externalities as well as positive externalities which
had an effect on the supply and demand side of the market but the positive
externalities and the benefits from the market far outweigh the costs. The
implementation of a price ceiling caused a shortage because the demand of face
masks increased, and quantity supplied decreased but was solved my importing
millions of masks from countries overseas i.e China.
Words count: 1997
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7.0: References:
Bernama. (2020, May 22). Private hospital fined RM200,000 for overpriced face masks.
Retrieved from https://www.freemalaysiatoday.com/category/nation/2020/05/22/private-
hospital-fined-rm200000-for-overpriced-face-masks/
Boo Su-Lyn (2020). Manufacturer Says Enough Face Masks For Public Hospitals. (2020, April
1). Retrieved from https://codeblue.galencentre.org/2020/04/01/manufacturer-says-
enough-face-masks-for-public-hospitals/
Econlife.com. (2020). [online] Available at: <https://econlife.com/2020/02/face-mask-
production/>
Okyere, M. A., Forson, R., & Essel‐Gaisey, F. (2020, April 10). Positive externalities of an
epidemic: The case of the coronavirus (COVID‐19) in China. Retrieved from
https://onlinelibrary.wiley.com/doi/10.1002/jmv.25830
Reuters, & Reuters. (2020, April 10). Glove, condom makers turn face mask producers for
Covid-19 crisis. Retrieved from
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https://www.freemalaysiatoday.com/category/nation/2020/04/10/glove-condom-makers-
turn-face-mask-producers-for-covid-19-crisis/
The Star Online. (2020, March 23). Face masks exempted from import duty, sales tax.
Retrieved from https://www.thestar.com.my/business/business-news/2020/03/23/face-
masks-exempted-from-import-duty-sales-tax
The Star Online. (2020, March 24). Unmasking the story behind the shortage. Retrieved from
https://www.thestar.com.my/opinion/letters/2020/03/24/unmasking-the-story-behind-the-
shortage
8.0: Appendix:
Figure 1.1:
The X axis describes the quantity of face masks while the Y axis describes the price of face
masks. This graph shows and increase in price and quantity because of the increase in
demand of face masks after covid-19
Figure 1.2:
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The X axis describes the quantity of face masks supplied and demanded while the Y axis
describes the price of the face masks. S1 is the supply before tax and S2 is the supply after
taxation.
Figure 1.3:
The X axis describes the quantity of face masks supplied and demanded while the Y axis
describes the price of face masks at each quantity supplied and demanded.
Figure 1.4:
Price ceiling of RM 1.5 (P2) below market price (P1). Quantity supplied (Q1) is less than
Quantity demanded (Q2), creating a shortage.
Figure 1.5:
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Negative externality. Supply curve shifts to the left to S2, new equilibrium point is E2,
Quantity decreases from Q1 to Q2 and price increases from P1 to P2. A negative externality
is a cost suffered by a third party as a consequence of an economic transaction which in this
topic is the purchasing of face masks
Figure 1.6:
Positive externality. Demand curve shifts upwards from D1 to D2, new equilibrium point is
E2, Quantity increases from Q1 to Q2 and the price increases from P1 to P2. Highlights area
is the deadweight loss.
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