Introduction

According to the World Health Organization (WHO), the world’s first reported

case of H1N1 (2009) was in Mexico City on March 18, 2009. However the first

case of confirmed H1N1 in Malaysia was reported on the 15th of May 2009 and

continued to escalate with a worrying magnitude until October 2009 where it

finally subsided and the number of daily reported cases started to reduce.

The H1N1 Pandemic caused panic in the minds of the public and people started

finding ways to protect themselves from this deadly virus. The most common way

that everyone agreed upon was to wear a face mask. This method was backed

by many researchers who believed that wearing a face mask can protect one

from contracting H1N1.

Demand and Factors Affecting Demand

Before I continue to examine the effects of the H1N1 Pandemic to the demand of

face masks, it is first important that demand and factors affecting demand are

clearly explained.

In terms of Economics, demand is the desire to own anything and the ability to

pay for it and willingness to pay for it (Steven M. Sheffrin, 2003). In my own words,

demand is the desire to own a particular product or service and is backed by

sufficient purchasing power. Demand if affected by (but not limited to) the goods

own price, the price of related goods, income, taste or preference and also the

consumers’ expectation of future income and prices.

The following diagram explains the effects of an increase in demand:

As can be seen, an increase in demand while holding supply constant will

increase the price and quantity demanded. It is also important to note that

demand and quantity demanded are not the same.

Factors affecting changes in demand are explained above while changes in

quantity demanded are a mere movevement along the demand line.

On the other hand, the Law of Demand states that price of goods and quantities

demanded are inversely related. This means, to sell more goods, the prices must

be lowered, vice-versa.

The 2009 Swine Flu (H1N1) Pandemic in Malaysia

As explained in the introduction of this assignment, H1N1 reached Malaysian

shores in May 2009 and continued to escalate until October 2009 before showing

a decline in new cases.

The following graph illustrates the number of H1N1 cases between May 29, 2009

and August 7, 2009.

Malaysia - H1N1Statistics for reporting dates

Info Reporting date Confirmed Deaths Fatality rate

Friday August 7, 2009 1,492 14 0.94%Friday July 31, 2009 1,371 4 0.29%Friday July 24, 2009 978 0 0.00%Friday July 17, 2009 772 0 0.00%Friday July 10, 2009 468 0 0.00%Monday July 6, 2009 112 0 0.00%

Friday July 3, 2009 112 0 0.00%

Wednesday July 1, 2009 112 0 0.00%Monday June 29, 2009 112 0 0.00%Friday June 26, 2009 68 0 0.00%

Wednesday June 24, 2009 68 0 0.00%Monday June 22, 2009 23 0 0.00%Friday June 19, 2009 23 0 0.00%

Wednesday June 17, 2009 17 0 0.00%Monday June 15, 2009 5 0 0.00%Friday June 12, 2009 5 0 0.00%

Wednesday June 10, 2009 5 0 0.00%Monday June 8, 2009 5 0 0.00%Friday June 5, 2009 2 0 0.00%

Wednesday June 3, 2009 2 0 0.00%Monday June 1, 2009 2 0 0.00%Friday May 29, 2009 2 0 0.00%

As can be seen, the number of cases has started to surge upwards by the 7th of

August 2009, resulting in overwhelming public concern on personal safety and

precautions against the H1N1 Virus.

The Demand for Face Masks and its effects on Price and Revenue

Following the H1N1 outbreak in Malaysia, the public started rushing to buy face

masks to protect themselves. The Star Malaysia also reported in August 2009

that ‘the sudden increase in demand for face masks has caused an increase in

the price following the rising number of deaths from H1N1 (‘Big Demand for

Masks Inflates Price’, 2009:08).

According to a survey conducted by Business Times in August 2009, the price of

a standard face mask has up to RM5 each from 40 cents previously. This can be

illustrated using the graph below.

Analysis based on real life data:

D1= Demand before H1N1 Outbreak

D2= Demand after H1N1 Outbreak

P1= RM 0.40

P2= RM 5.00

Q1= Quantities Demanded before H1N1 Outbreak

Q2= Quantities Demanded after H1N1 Outbreak

As the public now prefer and direly wants to buy facemasks, they increase the

demand, which in turn increases the price from RM 0.40 to RM 5.00 (holding

supply constant). This also increases the quantities demanded which ofcourse

will increase the sales revenue for producers of facemasks.

Introduction of Price Ceiling and Shortages of Face Mask

New Equilibrium after the H1N1 Outbreak

As the price of face masks continued to escalate, and taking into account public

health concerns, the Malaysian Government on the 20th of August 2009 imposed

a price ceiling for face masks.

The ceiling price set for each single-ply surgical mask is at 7 cents, 20 cents for

two-ply, and 80 cents for triple-ply (‘Ceiling Prices for Masks’, 2009:08). All the

prices set by the Ministry was below the market forces prices. This in turn led to a

shortage of face masks. Shortage is defined as the difference between quantity

demanded and quantity supplied at a given price. This is illustrated using the

diagram below.

Due to the fact that the price set by the Ministry was lower that Market Prices, the

quantity demanded exceeded the quantity supplied which creates a shortage.

Here supply and demand itself is held constant. Why this occurs is a question

that goes back to the Law of Demand which states that consumers demand more

of a good when prices are low. On the other hand, suppliers would not want to

supply as much as before because the price currently offered is very low.

Earlier Equilibrium at RM 5

Price Set by Ministry

This is evident as during August and September 2009, face masks were rarely

available and there was a huge shortage of masks.

Conclusion

The H1N1 outbreak in Malaysia which started in May 2009 has caused a sudden

increase in the demand of face masks. This in turn increased the price and

quantities demanded of face masks, based on this I can also conclude that the

revenue of face mask suppliers has increased tremendously during the time

frame of May to August 2009.

In August 2009, the government introduced price ceiling for face masks, after

considering public health. This later on resulted in a mass shortage of face

masks in Malaysia. The effects of the shortage is slowly subsiding as the number

of new H1N1 cases continue to decline and fewer people are demanding face

masks.

Recent WHO reports indicate that there might be another wave of H1N1 in the

near future. Whether this will re-increase the demand remains a question.

References

1. Increasing Demand for Face Masks 2009 [Online], Available:

http://www.bernama.com/bernama/v5/newsgeneral.php?id=431453

(Retrieved on November 11, 2009)

2. Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle

River, New Jersey: Pearson Prentice Hall. pp. 79

3. Malaysian H1N1 Statistics, [Online], Available:

http://h1n1.flu-virus.org/stats-.php?in=Malaysia

(Retrieved on November 11, 2009)

4. Big Demand for Masks Inflates Price 2009 [Online], Available:

www.thestar.com.my/news/story.asp?file=/2009/8/9/nation4487193

&sec=nation

(Retrieved on November 11, 2009)

5. Surgical Masks Ceiling Price Decision [Online], Available:

http://www.btimes.com.my/Current_News/BTIMES/articles/

20090817151144/Article/index_html

(Retrieved on November 11, 2009)

6. Ceiling Prices for Masks [Online], Available:

http://thestar.com.my/news/story.asp?file=/2009/8/20/nation/

4553450&sec=nation

(Retrieved on November 11, 2009)