Q1 use the suggested solution.
M Assuming you are a junior business consultant of "759 Store". Your boss asks you to prepare a simple demand and supply analysis about the business of snack shops run by 759 Store in Hong Kong and identify any possible changes in the market of snacks business faced by 759 Store. After investigation, you identify 2 pieces of relevant information which may affect the snack business of 759 Store: News 1: News 2: More and more snack shops are 759 Store receives more and more opened by other companies in bulk purchase discount from Hong Kong such as \"Best Mart\" overseas wholesalers as the and \"Magstore\". operation scale is getting larger. (a) Use the demand and supply analysis to study the snacks business of 759 Store. Explain how the equilibrium price and equilibrium quantity of snacks sold by 759 Store are affected when \"News 1\" is considered only. No diagram is needed but you need to describe how the curve(s) shifts. (3 marks) (b) Use the demand and supply analysis to study the snacks business of 759 Store. Explain how the equilibrium price and equilibrium quantity of snacks sold by 759 Store are affected when \"News 2\" is considered only. No diagram is needed but you need to describe how the curve(s) shifts. [3 marks) (c) To consider both the effects in parts (a) and (b), what are the possible effects on the equilibrium price and equilibrium quantity of snacks sold by 759 Store? Illustrate your explanations of different possibilities with demand and supply diagrams in your analysis. (14 marks) Suggested Solution List out the possible deductive results If the decrease in demand is less than the increase in (a) Market Demand As more and more snack shops are opened in Hong Kong, Don't forget to provide a demand-and- supply in the market of snack food sold by 759 Store, (1) Quote the given information, the number of Increases / decreases supply diagram for illustration. the equilibrium price decreases but the equilibrium (2) identify the relevant factor affecting the market demand condition, and and leads to increases / decreases in demand for snacks An illustration of the demand-and-supply quantity (3) how the market demand of this diagram for case 1 is drawn for you. You product is affected. sold by 759 Store. Snack food market faced by 759 Store are expected to complete the whole What are the impacts on this product? Graphically, the demand curve of snacks sold by 759 Store simple economic analysis by drawing the demand-and-supply diagrams of the (4) its market demand curve shifts rightward / leftward from DO to D1 in the diagram. $1 other two possibilities. (5) its equilibrium price and (6) its equilibrium quantity Both its equilibrium price and equilibrium quantity will PO increase / decrease. P1 D1 (b) Market Supply At the same time, 759 Store receives more bulk purchase (1) Quote the given information, Q0 01 (2) identify the relevant factor affecting discount from wholesalers, there is an increase / a the market supply condition, and decrease in the . It (3) how the market supply of this will lead to an increase / a decrease in supply of snacks If the decrease in demand is more than the increase product is affected. sold by 759 Store. in supply in the market of snack food sold by 759 What are the impacts on this product? Store, both the equilibrium price and equilibrium (4) its market supply curve, Graphically, the supply curve for snacks sold by 759 Store (5) its equilibrium price and quantity_ 6) its equilibrium quantity shifts rightward / leftward from SO to S1 in the diagram. Its equilibrium price will but the (Draw the demand and supply diagram below) equilibrium quantity will c Market Equilibrium To consider both factors together, the equilibrium price To sum up the possible effects of both factors on the market outcomes --- i.e of snacks sold by 759 Store will but the the equilibrium price and equilibrium impact on the equilibrium quantity is quantity. VD => Qev => Pev TS => Qet => Pev Qe ??? ; Pe V ("Uncertainty" occurred when we try to consider the combined effects of changes of demand and supply at the same time. This makes the next step meaningful - LISTING the three possibilities LOGICALLY. This is the most important part of this simple economic analysis. Thus, don't jump to any conclusion without providing this short summary.) 5
