Application Question: Harbour City

Question:

Harbour City is the largest shopping mall in Hong Kong, located alongside the beautiful Victoria Harbour. It was owned by the Wharf Limited (九龍倉), a company listed on the stock exchange, but recently has departed from his mother company to form a new listed company independently.

(a)    To which type of production does Harbour City belong? Explain.  (2 marks)

(b)   Harbour City successfully attracts a lot of visitors and benefits its nearby commercial centres and commercial premises. Explain, in terms of externality, how this may result in inefficiency. (3 marks)

(c)    Without the use of demand-supply diagram, explain how this‘demerger’ affect the stock price of the Wharf Limited.  (3 marks)

(d)   Even within the same district, Harbour City commands a higher premises rental than other large commercial centres. Give TWO reasons to explain why there such a price difference. (4 marks)

Answers:

(a)

tertiary production  (1)

provision of services (1)

(b)

There is positive external effect elicited from Harbour City.  (1)

The absence of compensation received from Harbour City creates the private benefits smaller than the social benefits. (1)

This results in MSB > MSC, entailing the under-scale of the center and thereby efficiency loss. (1)

(c)

The value of the Wharf Limited decreases. (1)

The demand for it decreases. (1)

Its stock price falls. (1)

(d)

Although they are located at the same district, their international goodwill is different. (1)

Harbour City can induce more visitors, relative to other nearby arcades. (1)

Their management services may not be the same. (1)

Harbour City may have provided more professional management services, in particular the marketing strategies. (1)