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What is an Economy?
An economy is a method of which money is flowed through numerous economic factors. These
include government, business and consumer factors. These three factors and how money is traded
between them make up an economy
1.0 THE ECONOMIC CYCLE
The economic cycle is a numerous-staged process of economic statuses a given economic
environment is in. Economies all over the planet are constantly changing in both positive and
negative ways. These economic changes have affects on governments, businesses and individuals.
In regards to Midland Realty, the status of the economic cycle can determine how well their
business is doing and how strong their sales can potentially be. Described below are the numerous
statuses an economy can be positioned, in an economic environment.
1.1 Economic Boom
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a well established and regarded brand in Hong Kong who have great brand perceptions in the
region.
Likelihood of Occurrence
I believe in the Hong Kong economy, an economic boom is very likely to occur given it is a trade
capital of the world and the amount of money being traded in the city is immense. Hong Kong offer
many job opportunities and provide services to countries all over the world, therefore the economy
is booming much of the time.
1.2 Economic Slowdown
An economic slowdown is when the level of economic growth is decreasing in a given economic
environment. In these situations, the level of supply is still increasing. This situation poses many
issues for the housing market and Midland Realty as they would still be staffed and be paying for
the economy to be good when there is a potential recession in view for the near future.
1.3 Economic Recession
An economic recession is when an economy has been shrinking for a period of two or more quarters
of a year. When a recession occurs, the demand of products begin to decrease and unemployment
increases in that economic environment.
Short Term Effects of an Economic Recession
Prices fall
Unemployment increases
Interest rates decrease
Long Term Effects of an Economic Recession
GDP decreases
People save money
Governments spend more
Potential tax increase
Advantages of an Economic Recession
Although an economic is a bad time for many businesses to do business and has a major affect on
sales in the housing market, there are some benefits for midland realty. A benefit of being in an
economic recession is that some of the smaller property agencies may be forced to close down or
leave Hong Kong.
Costs such as employee wages and utilities will become cheaper, saving the company from paying
high costs.
Disadvantages of an Economic Recession
There are many disadvantages of an economic recession as it is a very unfortunate time for
businesses. In a recession, there is a higher unemployment rate, as businesses have less demand.
Also in a recession, as demand for products and services are lowered, people are paid less
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compensation. Due to a higher unemployment rate and decreased salary, there would therefore be
decreased numbers of people who will be in jobs and therefore be in position to buy property in
Hong Kong. In addition ,as demand decreases, the prices of property is driven down meaning that
midland realty have a lower revenue potential for midland realty.
Economic Recession: Good or Bad?
I believe that an economic recession would be a bad time for most businesses, especially housing
agents like Midland Realty. In a recession, the demand for housing is lower as there is less spending
ability amongst the population and prices are forced to be driven down, providing even smaller
commission for Midland Realty.
Likelihood of Occurrence
Given that Hong Kong is such a prominent trade capital of the world, it makes it very difficult for
the Hong Kong economy to fall massively. It isnt very likely for the economy in Hong Kong to go
into recession. However, as China have limited the number of entires their citizens have to Hong
Kong, that can play a major effect on Hong Kong tourism, and possibly the overall economy.
Currently the economy of Hong Kong is growing, however, as the stock market crashed in China
means that the Hong Kong market may suffer.
1.2 Economic Recovery
An economic recovery occurs when a specific economy has gotten to the lowest level, that recovery
is the next level forward. Often, for recovery to work a boost in terms of making the population
richer to allow more circulation of funds in the economic environment.
2.0 LEVELS OF UNEMPLOYMENT
The levels of unemployment are the scales of how much of the population in a given economic
environment is unemployed and currently living without a job. Students, housewives and retired
citizens are excluded from this scale.
2.1 Factors That Cause Unemployment
Real wage unemployment - Wages in Hong Kong are high, some operations of companies move
to cheaper countries.
Demand Deficient Unemployment - When demand decreases. Happens in a recession.
Frictional Unemployment - People transitioning between education and a job.
Structural Unemployment - When labour is replaced by capital substitution.
2.2 Low Unemployment Rate (Hong Kong)
In Hong Kong, the current unemployment rate is at 3.3% which accounts for approximately
134,000 people out of the 7.188 million inhabitants that live in the Special Administrative Region.
(South China Morning Post). For an economic environment, the unemployment rate of Hong Kong
is very low, signifying the strength of the Hong Kong economy.
Advantages of Hong Kong Unemployment Rate (Low)
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The advantages of a low unemployment rate means that a very high percentage of the population
are in jobs and have money. With an increased number of citizens having money, means that there is
a greater number of people who have the ability to purchase property in Hong Kong.
More jobs also mean a wealthier population, as there are more people generating income. With
people having a greater amount of money means that there is a higher demand for products and
services. As a result, this means that there is an increased demand for housing and property in Hong
Kong which then drives up the prices of property as more people can afford it.
Disadvantages of Hong Kong Unemployment Rate (Low)
For Midland realty there are very few reasons why they would be unhappy with a low
unemployment rate. A cost to Midland Realty in a time where there are more citizens being able to
purchase housing means a larger workforce to accommodate the demand. With increased numbers
of staff means increased expenditure to the company for wages.
Short Term Effects of a Decreased Unemployment Rate
Increases prospects for purchasing property
Increased sales opportunities
Increased commission
Prices of property increases
Long Term Effects of a Decreased Unemployment Rate
Increased sales revenue
More houses/flats sold
Larger workforce needed
Increased profits
Government receives more tax
Likelihood of Low Unemployment Rate
The likelihood of a remained low unemployment is very high as Hong Kong has a great variety of
jobs and businesses to choose from. The amount of Hong Kong businesses are increasing and more
job openings are provided. This is very beneficial for the housing market as demand should
continue to increase.
Low Unemployment Rate: Good or Bad?
I believe that a low unemployment rate is beneficial to the housing market to keep demand high and
increase the buying potential of property from Midland.
2.3 High Unemployment Rate
A high unemployment rate is when a large percentage of the total population are out of jobs and do
not have employment. Hong Kong is very far from reaching a high unemployment rate as they have
one of the lowest rates in the world.
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Disadvantages of Inflation
The disadvantage of inflation for Midland Realty is the increase of costs they would have to face in
regards to labour, utilities and other general costs to the company. Midland Realty would have to
spend money recruiting new staff as they will need a larger workforce to accommodate for the
greater demand.
Short Term Effects of Inflation
Prices Increase
Increased sales opportunity
Increased commission
Long Term Effects of Inflation
Increased Sales Revenue
People have more money
Increase of workforce
Increased profits
Likelihood of Inflation
Given that Hong Kong has more and more businesses emerging all the time with increased trade
occurring in the economic environment, it means that there has been a long continuation of inflation
year-on-year, making the likelihood of inflation very high.
Inflation: Good or Bad?
Although the value of money begins to have less value and for many, it may seem that goods and
services become more expensive, for businesses in Hong Kong inflation is a good thing. For
Midland Realty it is definitely a plus given that they can increase prices during times of inflation
when people have money to also increase demand.
3.2 Deflation
Deflation is when the value of currency becomes increases and prices go down, meaning that you
can get more for a single-unit of currency.
Advantages of Deflation
Although deflation is a time that signifies the weakness of an economy, there are a handful of
benefits. During deflation, you can have more value for the money that you already have as the
current goods and services would decrease in price. For Midland Realty, this means that their costs
would become cheaper and they would pay less for labour costs.
Disadvantages of Deflation
There are many disadvantages of deflation as it means the economy in a specific economic
environment is shrinking. Deflation decreases the prices of goods and services, meaning that
businesses would therefore generate less profit and therefore, employees will not receive large
bonuses and the level of unemployment could increase. As a result, this means that there are fewer
people able of purchasing property and housing.
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Bibliography
"Topics." South China Morning Post. N.p., n.d. Web. 8 Sept. 2015
[www.scmp.com/topics/unemployment-rate]
"Total Population (in Number of People)." Total Population (in Number of People). N.p., n.d.
Web. 8 Sept. 2015.[http://data.worldbank.org/indicator/SP.POP.TOTL]
Bevan. J., Coupland-Smith. H., Dransfield.R. Goymer.J., Richards., BTEC National Business
Student Book 2010
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