## 8 July 2008

### What is Subsidy?

While i m busy being sick n all ... here is Something for your to pounder on. The so called concept of fuel subsidy if according to this email i got from my "angmoh-celup" frend is actually non-existant, its just a term someone create to fark us up oni ... How true izzit? You read and judge for yourself la!

A man called Ahbeng owns a farm which can produce 10 apples every day.

He has 5 workers to operate the farm.

Each of them eats 1 apple daily and it is enough to keep them operating the farm normally.

The remaining 4 apples, the landlord sells them at RM10 each and he earns RM40.

He uses the RM25 to improve the farm operation and facilities.

He gives RM2.00 to each of his workers and he keeps the remaining RM5.00 as profit.

Day by day, the farm is well developed and all of the 5 workers are happy with the money they can save.

When Ahbeng passed away and there is a new landlord, Ahmad comes to continue the farm operation.

He says to the workers:" We need to improve the farm quality and redefine our way of thinking.

From now on all of you only need to pay RM1.00 for each apple you eat. It is very cheap as the price is RM10 each outside the farm."

The workers have no choice but to pay RM1.00 for the apple they eat daily. Their earning decrease from RM2.00 to M1.00 per person.

As usual, Ahmad sells the 4 apples and he gets RM40. He uses RM25 for farm improvement and pays RM10 to his 5 workers. He gets RM5.00 as profit. On top of that, he gets another RM5.00 from the apples that he sells to his workers. In total, he gets RM10 as profit every day.

Soon, the apple price increases to RM20 each. The new landlord gets a higher profit as he gets RM80 for the 4 apples he sells daily.

Then, he decides to give the farming improvement contract to one of his close friend, Sam. Sam says:"Apple cost naik, improvement cost also misti naik."

So, the farm improvement cost increases from RM25 to RM50. In actual fact, the improvement only cost RM30. The remaining RM20, Ahmad and Sam share evenly among themselves.

Let's calculate how much Ahmad gets daily:

RM10 (from farm improvement cost)

RM20 (Net profit by selling 4 apples: [Gross profit, RM80] - [Improvement

cost, RM50] - [Wages RM10] = RM20)

RM5 (from selling apples to his workers)

In total, Ahmad gets RM35 daily compare to RM10 initially when he takes over

the farm from Ahbeng.

His profit increases RM25 and the workers are still getting RM1.00 daily per

person.

The greedy Ahmad does not want to stop there.

One day, he says to his fellow workers:" You see ah, the current market price for one apple is RM20 and you are only paying RM1.

See how lucky you are! I have to SUBSIDY RM19.00 for each of the apple you buy and total I need to SUBSIDY RM95.00.

This will greatly burden the farm and we might get bankrupt if we continue like this.

In order to avoid bankruptcy, I need to increase the apple price that you buy from RM1.00 to RM1.50 and I will bear the remaining RM18.50 per apple as my subsidy to you all. "

So, greedy Ahmad adds RM2.50 to his current profit and the number becomes RM37.50.

After you have read the story, I am sure you have already understood the meaning/concept of "SUBSIDY" given by the "U-no-hu"

The RM95 subsidy never existed in the first place and so was the RM52 billion fuel subsidy generously "given" by the "U-no-hu".

Cutting fuel subsidy is actually just a reason to steal money from your pocket.

Here is anoder simple-er example on how this subsilly shit works ... got this from Ahuei's brog

Ahmad is a fisherman. He sells a fish to you at $10 which is below the market value of $15.

Let's assume that he caught the fish from the abundance of the sea at little or no cost. Ahmad claims that since the market value of the fish is $15 and he sold you the fish for $10, he had subsidised you $5 and therefore made a loss of $5.

Question :

Did Ahmad actually make a profit of $10 or loss of $5 which he claimed is the subsidy?

Answer:

Ahmad makes a profit of $10 which is the difference of the selling price ($10) minus the cost price ($0 since the fish was caught from the abundance of the sea). There is no subsidy as claimed by Ahmad.

So ... who got farkED now?

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It might not be as simple as that.

ReplyDeleteWah... got rules oso to komen ah... Hahaha... gud...gud.

ReplyDeleteBoth story totally wrong lah. Ahmad kenot simply control the price of apple and fish he sell to his workers, there is some other 'vendor'. But then Ahmad still need to pay the 'subsidy' to that vendor for his workers.

That the reason why I still believe if Malaysian ONLY buy our petrol from Petronas, then Malaysia might be able to top up the subsidy money.

oi bradder, you first day do business meh? where can calculate lidat wan???

ReplyDeletethis has to be the most confusing post ever... i lost my math skills somewhere in that post! ha ha

ReplyDeletemaybe u will WIN the economic noble prize because of this formula. a bit complicated and yet, still applicable to our country now.

ReplyDeleteYea, not as simple as that lah.

ReplyDeleteBy the way, you sure the new owner's name is Ahmad not something else ah? Haha...

walao since when got rules for comments one ah? this post involve lotsa calculation and i also sien to calculate. but i do get the point. Kinda amazing to see how numbers go around.

ReplyDeleteLoL.. Subsidy.. I'll try that if I'm starting a new business.. xD

ReplyDelete-MXV-

I thought that the 10 apples produced each day at Ahmad's farm isn't suitable for consumption by the workers? And that they are selling all 10 for (eg. RM20 each) RM200 profit per day.

ReplyDeleteThen, Ahmad will have to purchase apples from neighbouring farms for their own consumption. Let's say those apples cost RM20 each as well, therefore RM200-(RM20 X 6) = RM80 profit. If the workers are paying RM1 for each apple, then Ahmad

ISsubsidising them RM19 each (RM95 in total) since they were bought at RM20 each, no?I think *some* of the workers aren't happy not only because they have to pay more for each apple but because they think/feel/believe that they are not just workers of the farm but up to a certain degree that they "own" the farm as well.

Some of them may want their pay to be increased. Some may want Ahmad to provide them with better facilities using the remainding profit. Of course, there are also some who

wants to see Ahmad "step down and change taukeh".This is what I understand of the current situation, unless I have totally misunderstood it.

2 points i would like to highlight:

ReplyDelete1-"the actual improvement cost is only rm30..."

this is pure assumption in the story, you can always put rm28 if you really want to make the taukeh look bad. if the market price doubled, there is a high chance that improvement cost would doubled as well. it's like roti canai price went up because flour price went up. it doesnt make sense to double up the market price and lose market if the cost is still low. you sell cheap, you sell more. and you sell continuously. simple economics.

2-the loss of potential profit is also considered a loss. again, simple economics.

in a way, both stories contradicted each other

hahaha. so complicated larh all the calculation comments that bloggers left.

ReplyDeletegood post! very true about our government actually. aiihz. what to do hor?

gg larh.

wings..i beh song you but i still wana comment because i beh song you...

ReplyDelete:D

because i wana sing u beh beh song...

i thnk the formula u posted is with the assumption that the fuel can be planted and grows on trees..

and the only customers are ali abeng and akau...

it is a very different story if u say taht u gonna export ur fuel to all the otehr kampungs..

although the term subsidy matches the example u used. maybe in a big scale nt so accurate.