Source : South China Morning Post
Date : 24-3-2004
Plaisir Cheung(4)
Vivien Lam(17)
The government plans to develop Lee Tung Street in Wanchai, which is a
street famous for selling Chinese wedding invitation cards, into a leisure,
commercial, residential and shopping area. This news is about the declining
of the wedding cards street.
Designing traditional Chinese wedding invitation cards requires special skills.
The pattern, use of colour and style of character are traditional culture.
When the shops are closed, this special craftsmanship will loss.
It is a Chinese tradition to distribute wedding invitation cards to friends
and relatives. This shows their respect and appreciation. And the most
important is to invite them to share their happiness. Therefore, the demand
for Chinese wedding cards is inelastic. As the government plans to clear the
whole wedding card street, the supply for wedding invitation cards will
decrease. The effect is shown as the graph below.
P
S2
S1
P2
P1
D1
Q2
As the supply of wedding
invitation cards decrease
(S1S2), the price of
cards will increase
(P1P2), the quantity
transacted of cards will
decrease (Q1Q2).
Q
Q1
P
The demand for wedding invitation
cards will increase when that period
of time is said to be lucky and
suitable for marriage according to
the tradition of China. This is a kind
of superstition. Wedding invitation
cards are made from paper, and
paper is made from timber. This
increase in demand will lead an
increase in demand for timber. This
is known as derived demand.
S
P2
P1
D2
D1
Q1
Q
Q2
Under the pressure of the government, the shops selling wedding invitation
cards will close down gradually. Some of the shops will close down first
before the others. They will not close all immediately. Suppose shop A and
shop B are shops selling wedding invitation cards in Lee Tung Street and
Shop A closes down first before shop B. The supply of wedding invitation
cards will decrease while the demand still remains the same. The cards of
shop B is the substitutes of cards of shop A. So, the owner of shop B may
raise the price of cards in order to earn more profit.
The government promised to offer a compensation of $4079 per square foot
to the owners, but only 39% of 647 owners have accepted the compensation.
2
This compensation is an ad valorem production subsidy because it is a sum of
money given to the producers to buy or rent a new place for the shop. The
amount depends on the rental value of the shops. Hence, the higher the
rental value of the shop, the higher compensation value.
In this case, the owner of the shop is the entrepreneur because he needs to
make decisions and bear risks of running a loss. He needs to decide whether
move the shop to other places or not, to accept the compensation or not, and
he has to bear risk when the government force them to clear the street for
redevelopment.
The wedding invitation cards shops are mainly owned as sole proprietorship.
There is only one owner; he provides all capital for the firm. He makes all
the decisions and gets all the profit but bear all the loss and risks. His
liability is unlimited, the owner is fully responsible for all its debts, he may
need to sell his personal property to repay his debts. There is no separate
legal status. It means that if the firm breaks the law, he will be personally
liable for the debt. Some advantage of sole proprietorship is that the owner
will have prompt decision making and can have close personal relationship
with the firm. But the disadvantage is that the sole proprietor will have
unlimited liability and there is no guarantee of continuity of the firm.
The owner of the wedding invitation card firm will employ labour to help
running the firm smoothly and systematically. They are the human resource.
Different labour will be paid by different method of wage payment. For
example, the bookkeeper and sales of the shop will be paid on time rate, i.e.
according to the length of time they have worked. This method is usually
practiced when it is difficult to measure the output of workers. This enables
them to have a stable income. But other labour, such as designer of the
wedding invitation card may be paid on piece rate, i.e. according to the
quantity of output they turned out. This method is fair to the hardworking
labour.
The wedding invitation cards company practice division of labour. Designing,
printing and selling cards are done separately. This can increase labour
productivity and save capital goods in production. Workers can use the
capital goods intensively. But workers may feel monotonous and lose interest
in their jobs.
3
The 2004-05 financial budget report promoted that sales tax will be
imposed in order to raise government revenue; the price of wedding
invitation cards will also be affected. The effect is as follows:
P
S2
S1
t
P2
P1
CB
PB
D1
Q
The imposition of sales tax (t)
will decrease the supply of
wedding invitation cards. But
the demand is inelastic. As a
result the price of cards will
increase (P1P2). The quantity
transacted will decrease
(Q1Q2). The producer
burden is P B and the
consumer burden is CB as
shown in the graph.
Q2 Q1
4