Economics Project The sharp Reduction on the price

Economics Project The sharp Reduction on the price of the fresh pork in the supermarkets Presented by Munsang College Flora Tsang Yin Fong Eva Lo Cheuk Yee Sara Choi Ka Yan (End the presentation)

Event Introductory 03/05/02 The supermarkets (Park’ N Shop and Wellcome) reduced the price of the fresh pork sharply, 04/05/02 The supermarket asked people to advertise in the wet market. 05/05/02 The wet market sellers asked the pork supplier, Ng Fung Hong (五豐行) to reduce the wholesales price to them but not succeed. 06/05/02 There were no fresh pork supplied in both the wet market and supermarkets.

The Triangular Relationship The supermarket The Buyer Please CLICK on either button! The wet market (Home)

The Supermarkets (The Park’ N Shop) 超市以低於每斤二十二元至二十四元零售價 出售豬肉，可能是因減省處理鮮豬程序而令 成本下降。一般買手由五豐行購得豬肉後， 需要再經兩個程序才到達市民手上，而超市 卻可減省有關程序，直接向市民出售豬肉， 在成功控制成本的優勢下，才能以較低價格 出售。 百佳發言人說他們藉減價為消費者提供便宜 鮮肉，他們以減低營運成本及提高生產力， 務求達到薄利多銷的效果。 (The above is quoted from the Sing. Tao Daily)

The Supermarkets (The Park’ N Shop) 1. Why could the Park’ N Shop reduce the price of the fresh pork so sharply? 2. Why long queues are seen in the supermarkets? Please CLICK on either bubble! (Back to Triangular Relationship)

The Supermarkets (The Park’ N Shop) Referring to Question 1 S S’ P P’ D Q Q’ Loss in Revenue S S’ P P’ D Q Q’ Gain in Revenue The Park’ N Shop successfully reduces the cost of production which could then increase the supply. This causes a decrease in the market price and an increase in the quantity transacted. So the total revenue of the supermarket will either increase or decrease, depending on the elasticity of demand.

The Supermarkets (The Park’ N Shop) Referring to Question 1 What’s the elasticity of Demand for fresh pork? As the fresh pork in the wet market and those in the supermarket are close substitutes. Buyer could easily turn to buy the pork from another market when either market is setting a higher price for the pork. So the demand for the fresh pork is elastic. Conclusion: Since the demand of the pork is elastic, by increasing the supply of the pork in the supermarket, the percentage decreases in price is less than the percentage increases in the quantity transacted. The total revenue increases. (Back to bubbles)

The Supermarkets (The Park’ N Shop) Referring to Question 2 S Pe mkt. price (Excess Demand) D As the price of the fresh pork in the supermarket is set below the equilibrium price, quantity supplied is less than quantity demanded, excess demand occurs. Long queues are found in the supermarkets. Qs Qe (Qt) (Back to bubbles)

The Wet Market Sellers 1. Why the wet market sellers asked Ng Fung Hong (五豐行) to reduce the wholesaling price to them? 2. Why the wet market sellers request the supermarket not to reduce the price of the pork so sharply? Please CLICK on either bubble! (Back to triangular relationship)

The Wet Market Sellers Referring to Question 1 S S’ P P’ D Q Q’ The sellers of the wet market asked Ng Fung Hong to reduce the wholesaling price of the pork to reduce their cost directly. By reducing the cost, supply will increase. Then price will decrease and quantity transacted will increase. This would help the sellers of the wet market to compete with the supermarket. (Back to Bubbles)

The Wet Market Sellers Referring to Question 2 S P P’ D D’ Q’ The pork in the wet market and the pork in the supermarkets are close substitutes. When the supermarket set the price of the pork at $19, the quantity demanded of the pork in the supermarket will increase which leads to a decrease in the demand of the pork in the wet market. This will decrease the total revenue of the seller in the wet market. Q (Back to Bubbles)

The Choice of the Buyer The H. K. government doesn’t take any action to affect the free trade of pork within H. K. Therefore the buyer would prefer to buy the cheaper & higher quality one. Because of this, Wellcome & Park’n shop set a price lower than the wet market to attract more business. As a result the buyers tend to buy pork from the two supermarkets. As it is cheaper, I’ll buy more! P P’ D Q Q’

The Choice of the Buyer Since the pork sold in the butchers and the one sold in the two super markets are substitutes. When the price of pork sold in the super market decreases, the demand for the pork sold in butcher decreases. I’ll choose to buy the pork in the Supermarket as it is much cheaper! S D D’ Back to triangular Relationship)