F.4C
Rosemarie Chiu (7)
Edith Hui (13)
Economics News Analysis
Source: South China Morning Post (Saturday, Dec 06, 2008)
The News Article
Gadget sale rings up
HK$50m on first day
Peter So, Dec 06, 2008
The recession may be forcing
people to tighten their belts, but
who can resist a 4GB memory card
for HK$49 or the latest laser printer
for half price?
The answer is: no one. At least
that seemed to be the case at
an outdoor computer festival
yesterday. Thousands flocked
the narrow streets of Sham Shui Po to buy laptops, monitors, printers and cameras at
what exhibitors touted as "tsunami prices".
The organisers - Sham Shui Po District Council and the Chamber of Hong Kong
Computer Industry - said that turnout was larger than expected on the first day, with
sales topping HK$50 million.
Police had to implement crowd management measures as more than 5,000 people
packed the festival in the first two hours.
The annual festival, which runs until Monday, has attracted more than 80 exhibitors. The
organisers expect total turnout to exceed 400,000, with shoppers spending more than
HK$180 million.
Eddy Wong, manager of a shop selling display monitors, said most products were selling
at cost price, or 40 per cent off regular prices. He has more than a thousand monitors in
stock. Some had sold out in the first few hours and he said: "I am confident that all the
stock will be sold."
Computer salesman Calvin Tse said his shop sold about 10 laptops during the morning.
He said most people had stopped spending in recent months. "Business had been so
quiet in the past few months, down about 40 per cent." He predicted the outlook would
be grim after the festival as "we don't know when the economic downturn will be over".
Vincent Leung, who went shopping in his lunch break, said he had been waiting for the
festival to buy a monitor and a television set-top box for a total of HK$3,000, saving
himself about HK$600.
Housewife Portia Li said the sale had encouraged her to spend. "I have bought two extra
display monitors because they are very cheap."
1|/6
The Annual Shum Shui Po Computer Festival
Describing the issue
The sale of computers had been very poor for the past few months because of the current
recession. Yet, crowds of people scrambled for heavily discounted computer and electronic
products at a computer festival, which was initialised by a motherboard manufacturer.
Diagram
Figure 1 – Demand and Supply of Advanced Computers
P
S1
S2
Excess supply
(Surplus)
P1
P3
P4/Pe
D1
D2
Q
Q2
Q3
Q4
(Qe)
Q1
2/4
The Annual Shum Shui Po Computer Festival
Explanation of the issue
I.
Change in Demand
Recent advertisements about the latest electronic products brought changes to people's
taste and raise the demand for computers. This increase is however offset by the
positive income effect over superior goods. Advanced computers are normal goods or
superior goods because people demand for more when income increases. The demand
for advanced computers therefore decreases in the current recession. The overall net
decrease in demand is reflected by a leftward shift of the demand curve (D1  D2) in
figure 1.
II.
Change in Equilibrium after Change in Demand
After the decrease in demand, but before the adjustment in price (remaining at P1) and
increase in supply, there was an excess supply, being the difference between Q1 and Q2
in figure 1. The quantity transacted fell (Q1  Q2). The revenue of suppliers also fell
{(P1Q1)  (P1Q2)}. After the price fell to P3, the equilibrium quantity increases to
Q3. Yet the total revenue (P3Q3) is still less than that before the crisis (P1Q1). So,
the businessmen said that the “business was down for the past few months.”
III.
Change in Supply
The supply of computers and electronic products in Hong Kong has recently increased
due to the following three factors. Firstly, the PRC computer manufacturers, whose
orders have been cancelled by many overseas buyers in the financial tsunami, relocated
their unsold stock to the HK market for clearance. Secondly, since the industry
predicted that “the outlook would be grim after the festival”, they would prefer to sell
their stock as soon as possible to avoid unexpected price cut in the future, thus raising
their current supply. Thirdly, as these sellers’ objectives are to maximize sales to clear
the unsold stock and to improve their cash level, they prefer to increase their supply
even the goods will be sold at a lower selling price. The ultimate increase is shown by
a rightward shift of the supply curve (S1  S2) in figure 1.
IV.
Quantity Transacted Increase
These above changes in demand and supply together drive the price downwards (P3 
P4). As price decreases, according to the Law of Demand, the quantity demanded
increases along the D2 demand curve (Q3  Q4), ceteris paribus. As the decrease in
demand is smaller than the increase in supply, the quantity transacted increase (Q1 
Q4) in figure 1. The total revenue of the suppliers is now shown by (P4Q4).
V.
Other Observations
A lot of customers queued up to visit the Festival. The opportunity costs of these
customers include their opportunity cost of time to queue and their opportunity cost of
money spend in buying the products. The opportunity cost is the best alternative
forgone in using the resources (time and money) the individual has, which is likely to
be different for each individual depending on her circumstances and choice.
3/4
The Annual Shum Shui Po Computer Festival
Computers are economic goods. They involve positive production cost. People prefer
to have more computers and its quantity available is not enough to satisfy all human
wants.
HK practices market economy, where people are free to make production and
consumption decisions and market prices serve as signals in deciding what goods to
produce and in what quantity. Thus, peoples’ ability to pay determines the quantity of
goods they can get at the Festival.
Computers can be a consumer good and at the same time, a capital good. Computers
are consumer goods if people use it to satisfy their wants directly (e.g. play computer
games with it). It will be a capital good if people use it to derive income (e.g. teachers
use it for teaching).
Computers and their complementary
goods (e.g. USBs, printers and monitors)
are in complementary demand.
A
decrease in price of computers leads to an
increase in the demand for its
complementary goods (a rightward shift of
the demand curve D1  D2 in figure 2.)
The increase in quantity transacted of
these products in the Festival can be
explained by both, an increase in their
demand due to a decrease in the price of
computers; and a decrease in their prices,
which can be explained by the law of
demand.
Figure 2 –Demand for computer complemntary
goods increases after decrease in price of
computers
Computers sold in this Festival and those
in Broadway and Fortress are substitutes.
As the price of computers in the sale is
lower, people buys computers in the sale
rather than those in those shops. Hence
the demand for computers in those shops
decreases, ceteris paribus.
This is
represented by a leftward shift of the
demand curve (D1  D2), a reduction in
price (P1  P2) and in quantity demanded
(Q1  Q2) in figure 3.
Figure 3 – Demand for Substitutes decreases after
decrease in price of computers
The festival was initiated by a computer
motherboards manufacturer, Mr. T.K.
Leung.
Motherboards are inputs of
computer. Mother-boards and computers
are in derived demand. An increase in
quantity demanded for computers will lead
to an increase in demand for motherboards, ceteris paribus. Thipaps is
represented by a rightward shift of the
demand curve (D1  D2), an increase in
price (P1  P2) and in quantity demanded
(Q1  Q2) in figure 4. This explains why
Mr Leung initialized the organization of
Figure 4 – Demand for computer motherboards
increases after decrease in price of computers
P
D2
D1
Q
P
S
P1
P2
D1
D2
Q2
P
Q1
D2
S
D1
P2
P1
Q1
4/4
Q
Q2
Q
The Annual Shum Shui Po Computer Festival
the Festival.
5/4