APs and car prices: it’s supply and demand lah! (LoyarBurok)

How a Minister forgot basic economics and dismissed a multi-billion ringgit opportunity. This article was published in Loyarburok

Last week, Bernama and other sources reported Dato’ Mukhriz Mahathir’s bewilderment at Pakatan Rakyat’s proposal to auction Approved Permits (APs) to import cars. Essentially, Mukhriz said that auctioning APs (instead of giving them out at a fixed price) would increase car prices. Mukhriz is of course the Deputy International Trade and Industry Minister. In a letter to Malaysiakini, Pakatan Rakyat’s Rafizi Ramli promptly responded to these concerns, describing in generous detail why the good Deputy Minister had been mistaken.

Of course, only one of them can be right. I drew some graphs to help illustrate who was right (spoiler alert – it’s Rafizi), and where the other person (read: Mukhriz) may have got it wrong. The mistake comes down to an oversight of one of the most fundamental concepts in economics: that prices are determined by both supply and demand.

To illustrate how this fundamental concept comes into play in this case, I drew some simple graphs. Continue reading