Leung Wing Yan, Carol (20) F.5B
Economics newspaper cutting
Individual Visit Scheme
More mainland citizens visit Hong Kong after the Individual Visit Scheme is
adopted, especially during festivals (For example: The National Day and Lunar New Year
holidays). Therefore, the hotel guest rooms (one of the economic good: As people prefer to
have more of it, they are willing to pay or forgo something to get it) will be in excess demand
[Fig 1](the market price of guest rooms is below the equilibrium price, quantity demanded is
larger than the quantity supplied)
It can be solved by price mechanism. The market price serves as signals, guiding
producers on what goods and what quantities of goods to produce. So, if the market price of the
hotel rooms increases up to the equilibrium price, excess demand can be solved. Also,
producers are interested in finding the least costly method of production. The highest bidder
can get the guest room.
Hotels are competing under monopolistic competition. (They have a large
number of sellers and buyers. Sellers are free to enter and exit the market. However, the goods
sold are heterogeneous. Different hotels provide different types of rooms and services. Also, it
has imperfect information of the market too. Neither sellers nor buyers are fully aware of the
price, quality and marketing techniques of other sellers.)
Mainland citizens earn much income nowadays. They mainly buy normal goods,
such as jewellery, famous brands products and electrical appliances. (An increase in income
leads to an increase in demand for such goods). As the demand for jewellery increases [Fig 5],
the demand for sales assistants of jewellery shops also increases They are of derived
demand.[Fig 2] (Demand for a good resulting from demand for another good)
At first, excess supply [Fig 4]of workers occurred. Quantity demanded of workers
is less than the quantity supplied as the market wage is set above equilibrium. After the
demand of sales assistants increases, unemployment rate decreases.
rate=unemployed population/labour force)
(Unemployment
Referring to the jewellery shops, when they raise the price, how does their revenue
change? The jewellery is in inelastic demand. [Fig 3](Percentage change in quantity demanded
is smaller than the percentage change in price, Ed<0) Percentage increase in quantity
demanded is smaller than the percentage decrease in price. Gain is larger than loss. So, the
total revenue of jewellery shops increases.
Leung Wing Yan, Carol (20) F.5B
The business environment is improving. The aggregate demand increases due to
rising investment and consumption. Government can help raise productivity by providing more
education opportunities. Therefore, producers will increase output to meet the demand.
Purchasing power increases.
Actual GDP will rise. (C+↑I+↑G+X-M=↑GDP)
Furthermore, the money supply of currency (Renminbi) in public circulation
increases. (↑M of RMB=↑Cp+Dd). This also helps Hong Kong go from trough to recovery.
However, forgery (HKD $10 coins) is discovered and it affects the functions of
Hong Kong dollars as a medium of exchange. The opportunity cost is to damage the good
images of Hong Kong. It will lower investors’ confidence. More manpower (e.g. police) is
required to maintain the social stability. Government expenditure will increase.
Fig 1. Excess demand (the market price is below the equilibrium price. Quantity demanded is
larger than the quantity supplied)
Leung Wing Yan, Carol (20) F.5B
Fig 2. Derived demand (demand for one good lead to increase in demand for another good)
Fig 3. Inelastic demand (Percentage change in quantity demanded is less than the percentage
change in price, Ed<0)
Leung Wing Yan, Carol (20) F.5B
Fig 4. excess supply of workers (unemployment)
Fig 5. Demand for jewellery
Leung Wing Yan, Carol (20) F.5B