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MBA 6073
Final Assignment
Case Study A & B
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Prepared for Dr.:
Case Study A- The Housing Market
Question 1
One factor that has been blamed for the housing crisis is Airbnb. Airbnb describes itself as
an online marketplace and hospitality service, enabling people to list or rent short-term
lodging including vacation rentals, apartment rentals, homestays, hostel beds, or hotel
rooms, with the cost of lodging set by the property owner. City councillors have targeted
these short term rentals, saying that many landlords have opted to Airbnb their home, rather
than rent out longer term. The growth of Airbnb in Vancouver has been shown below.
Explain why a housing market at equilibrium could still have a vacancy rate of 4%.
Victoria is still emerging from what could charitably be called a renter’s nightmare. Rental
vacancy rates dropped from nearly 3% in 2013 to only 0.6% in 2016, which is as close to
zero as it has gotten here in the past few decades. That’s excruciating for anyone hunting
for a new rental and combined with our aging rental stock has led to BC having the highest
proportion of forced moves in the country, mostly due to renovations and non-payment of
rent (Spalteholz, 2020).
In a perfect equilibrium, the housing market would have no vacancies. However, one of
the requirements of a perfect equilibrium is an instant transmission of information. In the
real market, this is not the case. Because of this, even if there is an equal amount of supply
and demand, it is difficult for renters to match up with landlords. This means that when
someone leaves the rental market, it takes time before that vacancy is filled. Therefore
even when supply = demand there can be a positive vacancy rate in the market. Depending
on the speed of information transfer, there will be an equilibrium vacancy rate that
represents healthy market conditions – without further information we could assume this
rate is around the Canadian average of 3.3%. This means that a vacancy rate of 0.6% would
have to represent a shortage of housing from disequilibrium.
Question 2
In the housing market, prices are slow to adjust, landlords cannot simply raise prices
immediately under the Residential Tenancy Act. Landlords can only raise prices when
negotiating a new contract. This causes many unjustified evictions from landlords as they
want to charge the new equilibrium price. In the short-term, prices stay relatively the same
causing shortages or surplus.
Assume 9000 new renters enter the market instead of mortgaging homes, show the impact
of the changes on a new graph. Explain the impact of both the shock from Airbnb and the
shock from less housing buyers on equilibrium price and quantity. Do the shocks work
together or oppose one another? Briefly explain this using demand and supply approach?
The increase in renters in the market causes an increase in demand as can be illustrated in
the following graph.
Again, the magnitude of the shift is given to us. We are told that quantity demanded
increases by 9000 rental units at every price. This causes demand to shift from D1 to D2.
The new equilibrium E3 results from the intersection between S2 and D2, in this case
EP3 = $800, EQ3 = 18,000 rental units
We can see that compared to EP1 = $600, EQ1 = 15,000 rental units, E3 has seen an increase
in price and quantity. Breaking down the two effects:
 The decrease in supply caused price to rise and quantity to fall.
 The increase in demand caused price to rise and quantity to rise.
We can see that the effects on price worked together, but the effects on quantity opposed.
The end result of an increase in quantity is because the demand shock was greater than the
supply shock. In this topic we explained that unless you know which effect is greater, the
result of opposing shocks are inconclusive. In this case we can say with certainty that
quantity has increased because we know the exact size of the shocks.
Case Study B - Government Intervention
Question 1
Explain, using supply and demand analysis with the assistance of graph, why the price of
sugar has been increasing recently.
According to demand theory, demand is the number of goods bought at a particular place
and time with the current price and time (Rumánková & Smutka, 2013). If an item on the
demand is affected by its own price (P), income level (Y), and the price of other
commodities (X), and assuming a constant elasticity of demand, the demand can be
exponentially mathematically expressed in terms of a demand function as Eq.
When prices rise, demand reduction, there will be more suppliers, and lead to increased
supply. This concept actually refers Supply Act. Supply Act refers to suppliers more
willing to sell more products at a higher price, rather than at a lower price. It also said that
these suppliers will try to increase production in that period, in order to increase their
profits. For example, when the price of sugar is increasing, the quantity demanded will be
decreasing while the quantity supplied will be increasing as well.
There are indications that demand factors explain why sugar is inelastic. First,
complementary products (Ron, 2019). Complementary products such as sugar are often
flexible. For example, if the sugar prices, the demand for coffee will decrease. Coffee
changing demand curve to the left. It is the price of sugar, because they need to demand a
negative correlation between coffee each other at the same time.
There are other factors that will affect the elasticity, such as the substitution of the
closeness, the proportion of income spent on the good, the time elapsed since the price
change. First, substitution of the approximation degree. Sugar is a necessity of goods, it
has a weak alternative, therefore considered inelastic demand. Second, the proportion of
income spent on good. We spend a very small proportion of sugar daily income. Thus,
sugar is inelastic demand. Finally, the time, because the price changes through. Elasticity
of demand depends on whether the value of the sugar can live a very long time. In this case,
the sugar is inelastic, and therefore a greater elasticity of demand. Instead of sugar, for
example, in a long time, consumers will find, because they have no choice but to set the
When the high sugar prices, supply will be higher, and because providers can earn more
profits, while demand will be lower. Therefore, it would result in a surplus of graphics.
When there is a surplus of supply over demand, excess quantity quantity certain price. In
surplus supply and demand curves represented by the above equilibrium price point. When
the presence of excess product oversupply buyers to choose from, you may pay less for
goods and services. For sellers, they are working with other suppliers to compete for
customers and their prices will fall, but also their sales.
Question 2
Justify on how might companies such as Mars and Nestlé react to an increase in the price
of sugar in the world scenario.
Sugar prices have reached a record level during the past three years in the world due to the
significant decrease in its production in India, Europe and Brazil, while its prices are
continuously declining in Russia due to its abundance. Since the beginning of 2020, the
price of sugar in the world market has grown by 18%, thereby renewing its highest level in
three years, during this month. According to ICE global commodities and financial services
exchanges, prices peaked on February 12, when raw sugar pounds reached 15.8 cents.
Experts explain this rise in the increasing shortage of this vital substance in the global
market, and according to the International Sugar Organization, in the 2019/2020 season the
global demand for sugar can exceed the supply by 6.1 million tons, while the experts of the
Dutch company expected that this figure to reach 8.2 Million tons (Skelly, 2015).
A number of companies operating in the chocolate industry are preparing to inject new
investments into the market during the coming period, with the recovery of the economy
following the crises that it was exposed to during the past two years, and affected most
markets. Chocolate production declined in the past two years at rates ranging between 10
and 50% among many producers, and the market expects exports to recover during the
coming period. Local alternatives that tried to take advantage of the high prices of imported
brands have recovered, and currently two companies control about 72% of sales in the
market, namely "Nestle" and "March."
Nestle has announced a 10 percent reduction in sugar in its chocolate products, such as
Kitkat, Yorkie and Aero, by next year. Sugar is to be replaced with more quantities of
ingredients in chocolate or other non-industrial ingredients, and the caloric intake will also
decrease. This means that approximately 7,500 tons of sugar will be used to make other
products for the company. Nestle said the move could help her have a major impact on
public health (Bundeskartellamt, 2017).
Fiona Kendrick, President and CEO of Nestle in the United Kingdom and Ireland, said:
"Our brand of sweets has been accepted by audiences in Britain for more than a century,
and we know that if we can improve our food products, and provide more options and
information to our customers. To have a major impact on public health. " "Nestle is at the
forefront of efforts to find and develop new technological means to manufacture better
foodstuffs for our customers," she added. And she continued: These innovations will help
us reduce the sugar in the candy, and that when combined with other methods more
common, such as re-composition recipes and replace sugar with other non-industrial
ingredients. Last year, Nestle said its researchers had made a scientific breakthrough by
discovering a way to synthesize sugar in a different way, with its use less than 40 percent
(Sayid, 2017).
The two companies might plan to shrink the size of household name chocolate bars such
as KitKats, Mars bars and Dairy Milk in order to reduce the level of sugar in them. Both
companies mastered a secret method which uses natural ingredients to alter sugar crystals
so they taste sweeter in smaller amounts. The two companies struggling to utilize sugar
alternatives in their products. Sugar substitute is a food additive that gives the same effect
of sugar on the sense of taste (that it is a sweetener), and it is usually less than sugar in
terms of calories. Some sugar substitutes are natural and some are processed. Abnormal
alternatives are usually called artificial sweeteners. A class of sugar substitutes is
considered a high-density sweetener. They are compounds that have several times the
sweetness of sucrose (usual sugar) and therefore need less than normal sugar, and therefore
the energy entering the body with food or tea sweetened with sugar substitute is negligible.
The sense of sweetness that results from compounds is sometimes different compared to
sucrose, so it is often used within a complex mixture that achieves the feeling of sweetness
more naturally.
All in all, the reaction of the two companies is justified as below:
 They might shift their production base to those countries where they could get
cheaper sugar to check their production costs.
 They could marginally increase the prices of their output in accordance with
increase in sugar prices
Bundeskartellamt, 2017. Fine proceedings against confectionery manufacturers. [Online]
[Accessed 17 April 2020].
Available at: https://www.foodbusinessnews.net/articles/14258-world-sugar-supply-seentightening
[Accessed 17 April 2020].
Rumánková, L. & Smutka, a. L., 2013. Global sugar market - The analysis of factors
influencing supply and demand. Acta Universitatis Agriculturae et Silviculturae
Mendelianae Brunensis, 6(12), pp. 463-471.
Sayid, R., 2017. Nestle is slashing sugar by 10% in its chocolates - but they say it won't
[Accessed 17 April 2020].
Skelly, J., 2015. A Bittersweet Future for Sugar Consumption in Packaged Food. [Online]
Available at: https://blog.euromonitor.com/a-bittersweet-future-for-sugar-consumptionin-packaged-food/
[Accessed 17 April 2020].
Spalteholz, L., 2020. The Capital Explains The Victoria Rental Crisis. [Online]
[Accessed 17 April 2020].