Question

Refer below table on the average prices, how to make a decision on KL or Penang residential prices are higher than other Peninsular states? Explain in detail.

States
Year	Penang	Kuala Lumpur	Johor	Selagor	Negeri Sembilan	Perak
2007	3.9	6.5	-0.2	0.7	3.4	1.5
2008	1.9	5.3	0.7	0.3	0.9	3.6
2009	4.7	7.9	3.1	3.2	5.1	3.9
2010	6.1	4.4	-0.1	4.6	3.8	6.5
2011	4.0	-2.5	5.5	-0.9	0.5	0.6
2012	3.5	12.2	2.7	9	3.8	5.1
Average	4.02	5.63	1.95	2.82	2.92	3.53

Answer 1

When the aggregate demand increases so does the price level. Demand is determined by various factors such as income of the consumers, availability of substitutes etc. One of the significant reason for the demand to increase is when the income of the consumers increase this results in increase in their purchasing power, so if the inhabitants of Penang or Kuala Lumpur are more well off than their counterparts in other provinces they would be willing to pay more for the goods and since their purchasing power is more so will their demand be. So if the sellers set higher prices in provinces where the aggregate demand and the purchasing power of the consumers are high it would not adversely affect the demand, due to this fact the citizens of Kula Lumpur and Penang would be willing to make the purchases at higher price level due to their higher purchasing power. On other hand if the sellers offer the same products at provinces where the purchasing power is contracted it would adversely affect their sales as the aggregate demand will decrease with the increase in the price level. When we observe the average price level in the past we observe that throughout the average price levels in Penang and Kuala Lumpur were higher then those of other provinces, hence we can safely gauge the price levels which citizens of various province would accept. The historical data of price levels can also be used as a guideline to gauge the the price levels people of various province would accept and as per this data Kuala Lumpur and Penang price levels have consistently been higher then those of other provinces hence unless there is any radical change in the economic condition we can presume the same trend to continue.