Friday, July 4, 2008

The subsidy - in layman's term

The story about "subsidy".


A man called Maha 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

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
with the money they can save.

When Maha passed away and there is a new landlord, Abdul comes to
the farm operation.

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

From now on all of you only need to pay RM1.00 for each apple you eat.
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
Their earning decrease from RM2.00 to M1.00 per person.

As usual, Abdul sells the 4 apples and he gets RM40. He uses RM25 for
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, Samy. Samy says:"Apple cost naik, improvement cost also
misti naik."

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

Let's calculate how much Abdul gets daily:

RM10 (from farm improvement cost)
RM20 (Net profit by selling 4 apples: [Gross profit, RM80] -
cost, RM50] - [Wages RM10] = RM20)
RM5 (from selling apples to his workers)

In total, Abdul gets RM35 daily compare to RM10 initially when he takes
over the farm from Maha.

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

The greedy Abdul 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
buy and total I need to SUBSIDY RM95.00.

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

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

So, greedy Abdul adds RM2.50 to his current profit and the number

After you have read the story, I am sure you have already understood the
meaning of "SUBSIDY" given by the government.

The RM95 subsidy never existed in the first place and so was the RM52
billion fuel subsidy generously "given" by the government

Cutting fuel subsidy is actually just a reason to steal money from our

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