HONG KONG COMMUNITY COLLEGE

BHMH2002 Introduction to Economics (S1, 2021)

Assignment I – Question Paper

Submission Deadline : 2pm on 21 Oct 2020 (Wednesday)

Program Learning Outcomes : This assessment is designed to measure S-ILO-3 Critical Thinking
 Analyse and evaluate information, ideas, arguments and
issues critically, and make decisions that are informed by
evidence in their chosen areas of specialism.

Subject Expected Learning : (a) explain the issues involved in the allocation of scarce
Outcomes: resources for individual economic agents and the
economy as a whole
(b) apply relevant economic knowledge to conduct economic
analysis of the behaviour of firms and markets, and the
effectiveness of government economic policy
(c) apply relevant economic knowledge to enhance their
understanding of other business subjects

Format and requirements : Students should refer to the “Instructions of Assignment I” for
the format and requirements. Answer ALL questions on the
standard answer sheet provided.

Declaration of Original Work Plagiarism is a serious misconduct. No part of students’

assignment should be taken from other people’s work without
giving them credit. All references must be clearly cited. Any
plagiarism found in students’ completed assignments can lead
to disciplinary actions such as mark deduction, disqualification
or even expulsion by the College.

This assignment has a total of THREE (3) pages (including this covering page).

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Question 1
You are a chocolate lover and you have been asked by your economics teacher to prepare a market
analysis of chocolate in the U.S. From data search, you identified several relevant news and prepared
a summary, so you conduct your analysis based on them.

News 1

NEW DATA: Consumers Find Joy in Chocolate and Candy During COVID-19
By National Confections Association, 24 August 2020

People across the country look for ways to add a little bit of joy to what has been a very serious
and uncertain time. Consumers appreciate and value chocolate and candy during these uncertain
times because of their uncanny ability to boost moods and lighten perspectives, according to new
data from NCA.

(Source: https://candyusa.com/news/new-data-consumers-find-joy-in-chocolate-and-candy-
during-covid-19/)

News Summary

Given the current events with COVID-19, health and safety of employees is on the first priority of
many chocolate factories in the U.S. Temporary measures are in force. Many of them, like See’s
Candies, suspend their production for first time since World War II.

(a) Consider the information of news 1 only. Use 1 to 2 sentence(s) to summarize the key news
information before introducing the factor affecting the market for chocolate in the U.S. Use a
demand and supply analysis to explain the effect(s) on the equilibrium price and equilibrium
quantity of chocolate in the U.S. No demand-and-supply diagram is needed but you should
describe how the curve(s) shift(s) in your written explanation. (5 marks)

(b) Consider the news summary only. Use 1 to 2 sentence(s) to summarize the key news
information before introducing the factor affecting the market for chocolate in the U.S. Use a
demand and supply analysis to explain the effect(s) on the equilibrium price and equilibrium
quantity of chocolate in the U.S. No demand-and-supply diagram is needed but you should
describe how the curve(s) shift(s) in your written explanation. (5 marks)

(c) Considering all effects identified in your answers of part (a) and (b), what are the combined
effects on the equilibrium price and equilibrium quantity of chocolate in the U.S.? (2 marks)

(d) Considering all effects identified in your answers of part (a) and (b), there are different
possibilities of market outcome in the market for chocolate in the U.S. Explain any two of them
and illustrate with demand-and-supply diagrams. (8 marks)

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Question 2

Winnie is 23-years old and just graduated from a local university with a first-class honours. She is
considering to accept an offer from a local university for a Master of Business Administration (MBA)
program. Her only reason to study further is the opportunity of earning a higher life-long income
from work. Searching from the average salary survey of Hong Kong, Winnie found that an MBA
graduate earns $122,000 more than a bachelor’s degree holder annually. No matter she studies
the Master program or not, Winnie expects to retire after 10 years as she plans to have an early
retirement after marriage.

It takes her two years to complete the MBA program in full time mode and the total tuition fee of
the program is $560,000. The estimated cost of books and other study aids is $25,500 per year. At
the same time, Winnie receives two full-time job offers with comparable job experience and
prospects of which the monthly income is $15,000 and $16,000 respectively.

(Remarks: Time value of money and the concept of “present value’ should NOT be considered in
your analysis.)

(a) (i) What is opportunity cost? Explain and calculate Winnie’s total opportunity cost of studying
the MBA program. (8 marks)

(ii) What is Winnie’s marginal benefit of studying the MBA program? (2 marks)

(iii) How could Winnie make a rational decision? Should she study the MBA program or not?
Explain. (3 marks)

(b) As an outstanding student, that local university offers Winnie a tuition scholarship of
$100,000, which can be used to finance her MBA study at their business school only. At the
same time, Winnie considers the pandemic may cause economic downturn in Hong Kong in
the coming future. She expects the salary difference between an MBA graduate and a
bachelor’s degree holder will be narrowed and less than $122,000 annually. However, the
exact amount is unknown.

(i) Given the information provided in part (b), identify and explain TWO incentives that could
affect Winnie’s decision of studying the MBA program. (4 marks)

(ii) Given the information provided in both part (a) and (b), Winnie decides to study the MBA
program. How could it be a rational decision? Discuss with relevant data. (3 marks)

- END OF PAPER -

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