F.4 Economics: News Analysis
Source:
Betty Pang (26) F.4C
South China Morning Post
Date of the article: 5 December 2005
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Diagram:
P
S
P0
Loss
D0
P1
D1
0
Q
Qd
New Year stalls
Description of the issue:
The auction of stalls for Lunar New Year fairs was held recently, but the
revenue has decreased comparing with last year According to the bidders, the
drop in auction is attributed to the heavy losses suffered by vendors last year
after buyers avoided festive trees and flowers due to the fire-ant scare. Also,
bidders are very conservative because of their uncertainty about the economy
and scare about the outbreak of bird-flu.
Explanation of the issue:
Since bidders lost money last year because of the fire-ant scare, they have observed
the potential outbreak of bird-flu and the uncertainty of the economy, so they expect
to have lower profit comparing with last year. In order to avoid losing capital in
business, they prefer not to bid the stalls. Therefore, demand for New Year stalls
decreases. On the other had, the Food and Environmental Hygiene Department keeps
the supply of stalls unchanged. Therefore, supply of New Year stalls is fixed. As
demand for New Year stalls unchanged( D0-D1 ), there is a downward movement
along the supply curve. So, the revenue from the auction of stalls for Lunar New Year
fairs decreases ( P0-P1 ) and the quantity demanded for the stalls remains unchanged.
Total revenue falls from P0Qd to P1Qd.
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