Economics News Report
Karen Chan (1)
Candy Cheung (3)
黃金周雖旺旅業 ＹMＣA 賓館減薪一成
Newspaper: Singtao Daily
Date: 1st May, 2004
Background
The May 1 “golden week” is believed to boost Hong Kong’s tourism. As
many mainland visitors will come to Hong Kong during the holiday and spend
their money in buying goods here to satisfy their wants.
Law of demand
Due to the golden week, many shops tend to attract mainland visitors by
decreasing the price of their goods. We can use the law of demand to explain
this. The law of demand states that an decrease (increase) in price of a good
will result in a increase (decrease) in its quality demanded, ceteris paribus.
This is shown in the diagram below.
P
P1
P2
D1
0
Q1
Q2
Law of demand
Q
Revenue of hotels
During the golden week, many mainland visitors will come to Hong Kong.
They will need to stay in hotels, so the demand for hotels increase.
P
S
P2
X
GAIN
P1
D2
Y
D1
0
Q
(Hotels)
The supply of hotel rooms is fixed. The demand curve shifts to the right. Price
increases from P1 to P2 and quantity transacted remains unchanged. The total
revenue of hotels increases from (P1 x Q) to (P2 x Q).
Wages payment for hotel workers
Workers’ wages are paid according to the length of time worked. This wage
payment is used because it is difficult to measure the contributions of workers
working in a hotel.
The advantages of using time rate is that to the employer, it is simple and easy
to administer. And workers can have a stable income. The risk of income
fluctuation is reduced.
There are some disadvantages; the employer’s cost of supervising the workers
is higher. Also, as workers income doesn’t depend on the output produced,
their working incentive will be weaker.
Therefore, profit sharing scheme is carried out. Under the profit sharing
scheme, a certain percentage of profit is given to the workers as a year-end
bonus. Workers with better performance will get more, so this could increase
workers working incentive. However, they will get no bonus if the hotel
makes no profit.
Case of workers’ wages
Nowadays the economic condition is poor, many people lose their jobs. There
is unemployment. This is shown in the diagram. The market price (P1) is
higher than the equilibrium wage (Pe). Quantity supplied is larger than
quantity demanded. There is excess supply of workers.
P
Excess Supply1
S
P1
Pe
D
0
Q
Qd
Workers
<
Qs
Decrease of workers wages
Golden week attracts many mainland tourists to Hong Kong, therefore hotels
demand more workers to serve the increasing numbers of tourists. There is
increase in demand for workers. Demand curve shifts to the right. At P1,
excess supply decreases. This reduces unemployment.
Excess Supply 2
P
Excess Supply 1
S
P1
Pe
D2
D1
1
Q
Workers
In order to further reduce the excess supply, the wage rate of the workers
should decrease to meet the equilibrium. Then there will be no excess supply.
However, the workers’ wages would have to decrease.
= The End =