Paradox of Increased Shopping during Ramadan

Ramadan is a holy month celebrated by Muslims by fasting and holding down their earthly desires to empathize with those who are less fortunate. On the contrary, in Jakarta, Indonesia, food and clothes prices during Ramadan normally increases compared to any other time of the year–which signals that people are actually shopping more than usual.

Ramadan is a holy month celebrated by Muslims by fasting and holding down their earthly desires to empathize with those who are less fortunate. On the contrary, in Jakarta, Indonesia, food and clothes prices during Ramadan normally increases compared to any other time of the year–which signals that people are actually shopping more than usual. Thus, many shopping centres and sellers have special Ramadan bazaars to cater the needs of the consumers that have received their Tunjangan Hari Raya (THR) or the Idul Fitri annual bonus.

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Prices can tell the honest story behind consumer behaviours. The paradox of Ramadan and the rise of consumerism during this time can be analyzed by using two microeconomic tools: the basics of supply and demand and indifference curves.

Figure 1

Since the demand curve shifts to the right, it will result in a higher price (labelled P1) and a larger quantity (labelled Q1).The demand curve, labelled D in Figure 1, shows how much a quantity of a good–for example food and clothes–that consumers are willing to buy depending on the price of the good. During Ramadan and nearing to Idul Fitri, people consume more because it is considered as a special occasion. Another reason why the demand curve shifts to the right (labelled D1) is because Muslim Indonesians have their right to receive their Idul Fitri bonus by law. This will lead to an increase in income, which will result in the increase of the quantity of food and clothes demanded.

Some people might prefer to spend more money on clothes compared to food, or vice versa. This gives a nice example on how consumers allocate their incomes to purchase different goods or services which is the core understanding of consumer behaviour.

To illustrate this, see Figure 2 (a) where you have indifference curves that shows the combination of food and clothes that provides the consumer with the same level of satisfaction. Although consumers can have as much food and clothes that they want, they are constrained with their income which is depicted through their budget line (the slope that connects the horizontal and vertical axis). Consumers would have a maximized satisfaction in point A, but with their Idul Fitri bonus, the budget line shifts upwards which leads to the consumers maximizing their satisfaction to point B–which was not attainable before.

In Figure 2 (b), the consumers who are depicted in indifference curve X are more willing to trade off a considerable amount of clothes for some additional food, while the consumers in indifference curve Y are the opposite. This is why in the article there are consumers who would be happier with more food but stick to their old clothes to wear for Idul Fitri and there are those who are happier with less food but prefer to buy new clothes.

Figure 2

The Indonesian government have regulated a mandatory rule for firms to provide their workers with a Religious Holiday Support” under a Decree of the Ministry of Manpower No. 4 Year 1994. The Muslims would receive their bonus during Idul Fitri, the Christians during Christmas, the Hindus during the Nyepi holiday, and the Buddhists during Vesak. The rationale behind this is because the government acknowledges that during the holidays, their citizen’s spending would increase thus they impose a rule for firms to provide their workers with a bonus to accommodate the increase in demand. However, this increase in income actually led to a higher increase in demand which results to higher prices.

Is the government providing the right policy to mandate this religious holiday support if their intention was for their citizens to accommodate the rising prices? Wouldn’t the rise in income actually stimulate the rise in prices? Would it be any different if they don’t impose the mandatory bonus? In addition, won’t imposing a mandatory bonus for workers would burden firms with higher labour costs?

On the other side, the mandatory bonus would be a better policy in theory because if, for example, the government sets a maximum price for food and clothes, it can create a deadweight loss for the society, although at first sight in can increase consumer surplus.

Loveconomics

I find it that most students who are studying economics struggle with the basic understanding of its concepts because most lecturers don’t give practical or real-world examples. Recently I just had my mid-term exams on microeconomics, and I would like to share a few thoughts to combine economics and the subject that we all can’t stop talking about: love.

I find it that most students who are studying economics struggle with the basic understanding of its concepts because most lecturers don’t give practical or real-world examples. Recently I just had my mid-term exams on microeconomics, and I would like to share a few thoughts to combine economics and the subject that we all can’t stop talking about: love. So here goes. Continue reading “Loveconomics”