HONG KONG COMMUNITY COLLEGE

BHMH2002 – Introduction to Economics (S2, 2122)

Assignment I – Suggested Solution
Question 1

1(a)

As the pets can contract / catch COVID-19 OR transit COVID-19 to other members of their species OR spread the disease and infect humans, there is
an unfavourable change in consumers’ preference OR a decrease in number of buyers for pets trading in Hong Kong..

The demand of pets trading in Hong Kong decreases and its demand curve shifts leftwards.

Both Its equilibrium price and equilibrium quantity decrease.

1(b)

As authorities suspended the import of all small animals into the city OR told all pet stores selling hamsters to suspend operations immediately until
all their small animals have tested negative, there is a decrease in number of sellers.

The supply of pets trading in Hong Kong decreases and its supply curve shifts leftwards.

Its equilibrium price increases but its equilibrium quantity decreases.

1(c)

To consider both factors together, the equilibrium quantity of pets trading in Hong Kong decreases but the impact on the equilibrium price is
uncertain.

The observation of decrease in price in the market is possible. If the decrease in demand is greater than the decrease in supply, the equilibrium
price of pets trading in Hong Kong decreases.

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ONE Diagram only:

Pets/Pet Trading in Hong Kong 1) Correct title of the diagram

Price 2) Correct label of X-axes in terms of price
(P)
S2
3) Correct label of Y-axes in terms of
S1
quantity (Q)
4) Correct labels and shift of demand curve
P1 5) Correct labels and shift of supply curve
6) The decrease in demand must be greater
P2 than the decrease in supply
7) Equilibrium price decreases
D1
8) Equilibrium quantity decreases

D2

Q2 Q1
Quantity

Question 2

2(a) Normative Statement depends on values, subjective judgment and cannot be tested. It is statement about what ought to be.

2(b) Positive statement might be right or wrong and we can discover which by careful observation of facts / can be tested. It is statement about
what is.

2(ci) Positive statement. The outcome can be tested/revealed / you can collect the data to test whether the statement is right or wrong.

2(cii) Normative Statement. It is a subjective judgment / cannot be tested / you may agree or disagree with it.

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 2(ciii) Positive statement. The outcome can be tested/revealed/ you can collect the data to test whether the statement is right or wrong.

Question 2c, any reasonable explanations are accepted.

Question 3

3(a) Opportunity cost is defined as the highest valued option forgone for an act or a decision.

In this case, the opportunity cost for Candy to accept the internship offer is time cost in term of the forgone salary / give up the salary from
the job which could be found in the job market which is $168,000 ($14,000*12).

3(b) In this case, the expected benefit for Candy to accept the internship offer In term of the salary earned which is $144,000 ($12,000*12), a
good reference letter and sound working experience gained.

3(c) For a rational decision, the marginal benefit is greater than or equal to the marginal cost of an act / marginal benefit exceeds marginal cost
until they are equal at the last unit.

In this case, the marginal / expected benefits of accepting the internship offer is $144,000 and a good reference letter with sound working
experience gained, the marginal / opportunity cost is $168,000.

The missing information is the actual value of the good reference letter and sound working experience.

If the expected /estimated value of the reference letter and working experience is higher than $24,000 (= $168,000-$144,000), the
expected /marginal benefit / benefit of the internship program is higher than the opportunity cost / marginal cost / cost. Candy should
take the internship offer.

OR

If the expected /estimated value of the reference letter and working experience is equal to $24,000 (= $168,000-$144,000), the expected
benefit of the internship program is equal to the opportunity cost. Candy should take the internship offer.

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