Mooncakes – Demand and Supply 4S Gigi Leung (25) Florence Li (27) Konny Tang (33) Cherry Yeung (39)

Content 1.Introduction – What Are Mooncakes? 2.Demand – Mooncakes before/during Mid- Autumn Festival 3.Comparison of Different Mooncakes – Traditional Mooncakes VS. Jelly Mooncakes 4.Case Study – Mooncakes Sellers’ Profit/Loss (Law of Demand & Elasticity of Demand)

Introduction Mooncakes Traditional food eaten during the Mid-Autumn Festival The most important item in the Festival

Mooncakes during normal days S1S1 D1D1 P1P1 Q1Q1 P($) Q/t 0

Mooncakes during normal days S1S1 D1D1 P1P1 Q1Q1 Before Mid-Autumn Festival, there is no change in both the demand and supply for mooncakes. As shown in the diagram, the supply S and demand D remain constant. The equilibrium price is P1 and quantity transacted is Q1. Q/t 0 P($)

Mooncakes during Mid-Autumn Festival S1S1 D1D1 P1P1 Q1Q1 D2D2 S2S2 P2P2 Q2Q2 P($) Q/t 0

P($) Mooncakes during Mid-Autumn Festival S1S1 D1D1 P1P1 Q1Q1 D2D2 S2S2 P2P2 Q2Q2 During Mid-Autumn Festival, people will buy mooncakes for both self-consumption and gifts, leading to an increase in demand for mooncakes, the demand curve shifts rightwards from D1 to D2. Mooncake suppliers will also increase their supply of mooncakes, leading to an increase in supply of mooncakes, the supply curve shifts rightwards from S1 to S2. Since the increase in demand is greater than the increase in supply, the price of mooncakes rise from P1 to P2. The quantity transacted increases from Q1 to Q2. Q/t 0

Mooncakes during Mid-Autumn Festival S1S1 D1D1 P1P1 Q1Q1 D2D2 S2S2 P2P2 Q2Q2 During Mid-Autumn Festival, people will buy mooncakes for both self-consumption and gifts, leading to an increase in demand for mooncakes, the demand curve shifts rightwards from D1 to D2. Mooncake suppliers will also increase their supply of mooncakes, leading to an increase in supply of mooncakes, the supply curve shifts rightwards from S1 to S2. Since the increase in demand is greater than the increase in supply, the price of mooncakes rise from P1 to P2. The quantity transacted increases from Q1 to Q2. D 1 increase to D 2 S 1 increase to S 2 P 1 increase to P 2 Q 1 increase to Q 2 Q/t 0

Traditional Mooncakes vs. Jelly Mooncakes Jelly ( 冰皮 ) mooncakes are becoming more popular due to the change in trend, e.g. advertisement/ fashion Its demand has greatly increased in the previous years We are going to look into the relationship between traditional mooncakes and modern jelly mooncakes DERIVED DEMAND SUBSTITUES

Number of Mooncake Products Provided by the Major Producers* 1 in the Market *1 Wing Wah, Maxim's, Tai Pan

Henry A seller of traditional mooncakes, also an expert in Economics Cherry A seller of jelly mooncakes HAHA, jelly mooncakes are more popular now. I am selling more mooncakes than you, so I am gaining more profit than you! Not necessarily…

Jelly Mooncakes S1S1 D1D1 P1P1 Q1Q1 D2D2 P2P2 Q2Q2 P($) Q/t0

Jelly Mooncakes S1S1 D1D1 P1P1 Q1Q1 D2D2 P2P2 Q2Q2 The demand for jelly mooncakes increases. As shown in the diagram, the demand curve for jelly mooncakes shifts rightwards from D1 to D2. The equilibrium price for traditional mooncakes increases from P1 to P2, and the quantity transacted increases from Q1 to Q2. P($) Q/t0

Jelly Mooncakes S1S1 D1D1 P1P1 Q1Q1 D2D2 P2P2 Q2Q2 The demand for jelly mooncakes increases. As shown in the diagram, the demand curve for jelly mooncakes shifts rightwards from D1 to D2. The equilibrium price for traditional mooncakes increases from P1 to P2, and the quantity transacted increases from Q1 to Q2. D 1 increase to D 2 Supply remains unchanged P 1 increase to P 2 Q 1 increase to Q 2 P($) Q/t0

Traditional Mooncakes S1S1 D2D2 P1P1 Q1Q1 D1D1 Q2Q2 P2P2 P($) Q/t0

Traditional Mooncakes S1S1 D2D2 P1P1 Q1Q1 D1D1 Q2Q2 P2P2 Since jelly mooncakes are substitutes for traditional mooncakes, people now buy fewer traditional mooncakes. There is a decrease in demand for traditional mooncakes. As shown in the diagram, the demand curve for traditional mooncakes shifts leftwards from D1 to D2. The equilibrium price for traditional mooncakes drops from P1 to P2, and the quantity transacted decreases from Q1 to Q2. P($) Q/t0

S1S1 D2D2 P1P1 Q1Q1 D1D1 Q2Q2 P2P2 Since jelly mooncakes are substitutes for traditional mooncakes, people now buy fewer traditional mooncakes. There is a decrease in demand for traditional mooncakes. As shown in the diagram, the demand curve for traditional mooncakes shifts leftwards from D1 to D2. The equilibrium price for traditional mooncakes drops from P1 to P2, and the quantity transacted decreases from Q1 to Q2. D 1 decrease to D 2 Supply remains unchanged P 1 decrease to P 2 Q 1 decrease to Q 2 P($) Q/t0 Traditional Mooncakes

Henry A seller of traditional mooncakes, also an expert in Economics Cherry A seller of jelly mooncakes See? Both of price and quantity transacted of jelly mooncakes increases while those of traditional mooncakes decrease, and that means I earn more than you! However, I can lower the price of the mooncakes to attract more buyers, so the quantity demanded will increase according to the law of demand.

Henry A seller of traditional mooncakes, also an expert in Economics However, I can lower the price of the mooncakes to attract more buyers, so the quantity demanded will increase according to the law of demand. Quantity Demanded The amount of good or service consumers are willing to buy at a given price over a period of time, other things being constant. Law of Demand A decrease in the price of a good will result in an increase in its quantity demanded over a period of time and other things being constant, or vice versa.

Traditional Mooncakes P1P1 Qd 1 D P2P2 Qd 2 Loss Gain P($) Q/t0

Traditional Mooncakes P1P1 Qd 1 D P2P2 Qd 2 Loss Gain Traditional mooncakes have an elastic demand. As the price goes down from P1 to P2, the quantity demanded for traditional mooncakes will increase from Qd1 to Qd2. The percentage increase in quantity demanded is greater than the percentage decrease in price. The gain in the increase in quantity demanded is greater than the loss in decrease in price. Therefore, the total revenue of traditional mooncakes increase. P($) Q/t0

Traditional Mooncakes P1P1 Qd 1 D P2P2 Qd 2 Loss Gain Traditional mooncakes have an elastic demand. As the price goes down from P1 to P2, the quantity demanded for traditional mooncakes will increase from Qd1 to Qd2. The percentage increase in quantity demanded is greater than the percentage decrease in price. The gain in the increase in quantity demanded is greater than the loss in decrease in price. Therefore, the total revenue of traditional mooncakes increase. P 1 decrease to P 2 Qd 1 increase to Qd 2 Increase in Qd > Decrease in P Gain in Qd > Loss in P Total revenue increases P($) Q/t0

Henry A seller of traditional mooncakes, also an expert in Economics Cherry A seller of jelly mooncakes So how does it affect my total revenue? So in this case, my total revenue increases because I lowered the prices of my products. And since we are in competitive demand, the demand for jelly mooncakes will fall.

Jelly Mooncakes S1S1 D2D2 P1P1 Q1Q1 D1D1 Q2Q2 P2P2 Loss P($) Q/t0

Jelly Mooncakes S1S1 D2D2 P1P1 Q1Q1 D1D1 Q2Q2 P2P2 Since the two products are in competitive demand, the increase in the quantity demanded of traditional mooncakes will lead to a decrease in the demand for jelly mooncakes. There will be a leftward shift in the demand curve from D1 to D2. Thus, there will be a decrease in the sales revenue of jelly mooncakes. P($) Q/t0

Jelly Mooncakes S1S1 D2D2 P1P1 Q1Q1 D1D1 Q2Q2 P2P2 Since the two products are in competition, the increase in the quantity demanded of traditional mooncakes will lead to a decrease in the demand for jelly mooncakes. There will be a leftward shift in the demand curve from D1 to D2. Thus, there will be a decrease in the sales revenue of jelly mooncakes. Substitutes for each other D 1 decrease to D 2 Supply remains unchanged P 1 decrease to P 2 Q 1 decrease to Q 2 Total revenue decreases P($) Q/t0

Henry A seller of traditional mooncakes, also an expert in Economics Cherry A seller of jelly mooncakes Oh my! This is so confusing! So who is earning more? No worries, let me summarise all the ideas.

Henry A seller of traditional mooncakes, also an expert in Economics Since jelly mooncakes are becoming popular, demand for traditional mooncakes will decrease while the demand for jelly mooncakes increases. The price and quantity transacted of traditional mooncakes will decrease. Conversely, the price and quantity transacted of jelly mooncakes increases. Conclusion

Henry A seller of traditional mooncakes, also an expert in Economics Cherry A seller of jelly mooncakes I finally get it! Thanks Henry! However, the traditional mooncakes suppliers may lower their to attract more customers to increase their sales revenue. Then the demand for jelly mooncakes will decrease, so is the sales revenue of jelly mooncakes. The total revenue of both kinds of mooncakes are constantly affecting each other. There are also many other factors influencing the revenues. Therefore, it is hard to tell who is gaining more profit.

References SPCS economics notes