Download Economics Mock Exam Paper 2 (Set 15) Suggested Answers The

Economics Mock Exam Paper 2 (Set 15)
Suggested Answers
The following answers are for reference only. Alternative answers are also acceptable so long as they
are well reasoned.
Section A
1.
Marks
(a) Yes
(1)
–More is preferred to less.
Either one,
–There is a cost in acquiring the tissue paper because the resources used for producing
(1)
it are scarce and have alternative uses.
–Any other relevant point
(b) No
(1)
–Rival in consumption / Excludable in consumption
(1)
–One person using a unit of toilet paper would reduce the amount of tissue paper for other
people.
2.
(1)
(a) Private limited company
(1)
(b) –It has limited liability. The maximum loss to shareholders is limited to the
amount that they have invested in the company.
–Compared to sole proprietorship and partnership, it has wider sources of
capital.
@2
max: 4
–There is separation of ownership and management. Shareholders elect a board
of directors who run the company on their behalf.
–Any other relevant point
[Mark the FIRST TWO points only.]
3.
No
(1)
This is because the benefit of the closure of the airport has already been reflected in private
benefit in the form of an increase in the market price of the flats nearby.
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(2)
Economics Mock Exam Paper 2 (Set 15)
Suggested Answers
Marks
4.
(a) Verbal elaboration:
When the elasticity of demand < the elasticity of supply, consumers would bear a larger
share of the tax burden.
(1)
Indicate on the diagram:
–Upward shift of the supply curve
(1)
–Able to show the producers’ tax burden
(1)
–Able to show the consumers’ tax burden
(1)
–Consumers’ tax burden > Producers’ tax burden
(1)
(b) Verbal elaboration:
Consumer surplus would decrease.
(1)
Indicate on the diagram:
–Able to show the reduction in the consumer surplus (Area P2P1AB)
Price ($)
Consumers’ tax burden
S2
A
S1
P2
P1
P3
B
D
0
Producers’ tax burden
Quantity
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ECON-MOCK15-ANS-2
(1)
Economics Mock Exam Paper 2 (Set 15)
Suggested Answers
Marks
5.
(a)(i) Country A
(1)
This is because it could produce more of Good X with the same amount of input.
(1)
(ii) In Country A, the opportunity cost in producing 1 unit of Good X
(1)
= 6/3 units of Good Y = 2 units of Good Y
In Country B, the opportunity cost in producing 1 unit of Good X
(1)
= 8/2 units of Good Y = 4 units of Good Y
Therefore, Country A has a comparative advantage in producing Good X.
(1)
(b) Yes
(1)
Country B would be the importing country of Good X.
(1)
After deducting the transportation cost, there is still mutually beneficial trade between
(1)
the countries if the terms of trade is 2 units of Good Y < 1unit of Good X < 3 units of
Good Y.
6.
(a) Required reserve ratio = 500 / 2,000 × 100% = 25%
(1)
(b) Money supply = $(800 + 2,000) million = $2,800 million
(1)
Monetary base = $(800 + 500) million = $1,300 million
(1)
(c) New money supply = $(800 + 500 × 1 / 20%) million = $3,300 million
(2)
New monetary base = $(800 + 500) million = $1,300 million
7.
(2)
(a) Deflation is a persistent decrease in the general price level.
(2)
(b) –Tenants who have to pay fixed rents to the flat owner because the purchasing power of
rents increases in real terms.
(2)
–Employers who pay fixed salaries to employees because the purchasing power of
salaries increases in real terms.
(2)
–Any other relevant point
[Mark the FIRST TWO points only.]
8.
(a) –In a planned economy, most resources are owned by the government; in a market
economy, most resources are owned by private firms or individuals.
(1)
–In a planned economy, the basic economic problems are solved by government
decisions or central planning; in a market economy, the basic economic problems are
solved by the market mechanism.
(1)
(b) Private property rights include exclusive use rights, exclusive income rights and transfer (2)
rights.
–Private property rights could increase workers’ work incentive.
–Any other relevant point
(1)
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Either one,
Economics Mock Exam Paper 2 (Set 15)
Suggested Answers
Marks
9.
(a) According to the equation of exchange, MV = PY,
where M: Money supply
V: Velocity of circulation of money
P: Price level
Y: Real national income
(2)
In classical Quantity Theory of Money, V and Y are assumed to be constant.
(1)
Therefore, an increase in the money supply would lead to an increase in the price level
of the economy by the same percentage.
(1)
Section B
10. (a) The new policy would reduce the demand for the trips to Hong Kong.
(1)
The rent of hotels would decrease.
(1)
The occupancy rate of hotels would decrease.
(1)
(b) Verbal elaboration:
The new policy would lead to a decrease in exports.
(1)
The aggregate demand of Hong Kong would decrease.
(1)
The price level and real GDP would decrease.
(1)
Indicate on the diagram:
AD curve shifts to the left.
(1)
Price level decreases.
(1)
Real GDP decreases.
(1)
Price level
SRAS
P1
P2
AD1
AD2
0
Real GDP
Y2 Y1
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ECON-MOCK15-ANS-2
Economics Mock Exam Paper 2 (Set 15)
Suggested Answers
Marks
(c) In the current account, the exports of services would decrease.
(1)
This is because the revenue from tourism belongs to exports of services (invisible trade).
(1)
Therefore, the current account balance would decrease.
(1)
(d) Under the linked exchange rate system, a depreciation of the RMB against the US dollar
(1)
implies a depreciation of the RMB against the HK dollar.
Hong Kong’s goods would be more expensive in terms of the RMB.
(1)
Therefore, the consumption incentive of mainland tourists would decrease.
(1)
11. (a) (i) Negative benchmark interest rate
(1)
Purchase of government bonds
(1)
(ii) A negative benchmark interest rate and the purchase of government bonds would
lead to an increase in the money supply.
(1)
The interest rate would decrease.
(1)
Consumption expenditure and investment expenditure would increase.
(1)
The aggregate demand would increase.
(1)
The real GDP would increase.
(1)
(iii) This is because the incentive to consume and invest is very weak.
(2)
Although the interest rate is very low, it could not lead to an increase in aggregate
demand.
(1)
(b) Regressive tax
(1)
This is because the tax payment of the sales tax remains unchanged when income
increases.
(2)
(c) The Gini coefficient would increase.
(1)
This is because for low-income families, the proportion of daily necessities to their
income is higher than that of high-income families.
(1)
Therefore, the increase in the sales tax rate may lead to more uneven distribution of
resources.
(1)
(d) The Gini coefficient would decrease.
(1)
This is because the high-income group have to pay a larger proportion of their income
in tax compared to the low-income group.
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ECON-MOCK15-ANS-2
(1)
Economics Mock Exam Paper 2 (Set 15)
Suggested Answers
Marks
12. (a) Oligopoly
(1)
– There are entry barriers.
– Sellers sell homogeneous or heterogeneous products.
@1
– Price searchers
max: 3
– There is imperfect information.
[Mark the FIRST THREE points only.]
(b) Tertiary production
(1)
This is because the provision of banking service is involved.
(c) Labour
(1)
(1)
This is because he or she provides physical or mental effort in production.
(1)
(d) This is because tellers have a number of duties. Time rates can save costs on wage
calculation.
(2)
13 (a) Verbal elaboration:
The per-unit subsidy leads to a rightward shift of the supply curve.
(1)
The consumer surplus increases.
(1)
The producer surplus increases.
(1)
Indicate on the diagram:
Supply curve shifts to the right.
(1)
The consumer surplus increases by P1ABP2
(1)
The producer surplus increases by P3CAP1
(1)
Price ($)
Figure 1
S1
Producers’ subsidy benefit
C
P3
A
S2
P1
P2
Consumers’ subsidy benefit
B
D
0
Q1
Q2
Quantity
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ECON-MOCK15-ANS-2
Economics Mock Exam Paper 2 (Set 15)
Suggested Answers
Marks
(b) Verbal elaboration:
When the elasticity of demand < the elasticity of supply, consumers receive more
subsidy benefit than the producers.
(2)
Indicate on the diagram:
Correct position of producers’ subsidy benefit
(1)
Correct position of consumers’ subsidy benefit
(1)
Producers’ subsidy benefit < Consumers’ subsidy benefit
(1)
Section C
14. (a)(i) Indicate on the diagram:
Correct position of P1
(1)
Correct position of Q1
(1)
Price ($)
Figure 2
Deadweight loss
P1
MC
D
MR
Quantity
0
Q1
(ii) Verbal elaboration:
It is inefficient to adopt simple monopoly pricing.
(1)
This is because there is a deadweight loss / the marginal benefit is greater than the
marginal cost at Q1.
(1)
Indicate on the diagram:
Correct position of the deadweight loss
(b) The marginal cost curve would shift upwards.
(1)
(1)
This is because the rise in electricity charges would increase the marginal cost of the
MTR.
(1)
(c) Yes
(1)
The senior and other adults are charged two different fares for the same service.
The differences are not due to the differences in cost.
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ECON-MOCK15-ANS-2
(2)
Economics Mock Exam Paper 2 (Set 15)
Suggested Answers
Marks
(d) Bundling
(1)
This case involves an offer of two products for one bundled price.
(1)
It becomes difficult for other companies that offer fixed-line telephone and broadband
services to enter the market. / It creates a barrier for new entrants.
(e) Merger / Vertical merger
(1)
(1)
It occurs when firms producing in the same industry but at different stages of production
join together.
(1)
It could drive potential competitors away (as the electricity supplier can choose not to
supply electricity to the potential competitors of the MTR).
15. (a)
(b)
(1)
No
(1)
This is because Country Z does not have enough resources to produce at point E.
(1)
Good Y
(1)
This is because Country Z’s opportunity cost of producing Good Y is lower than
(2)
the world price.
(c) (i)
Indicate on the diagram:
Correct position of point P
(1)
Correct position of point Q
(1)
Good Y
Figure 3
A
P

E


F
Q

0
Good X
B
(ii)
Verbal elaboration:
Yes, because
(1)
the consumption possibilities can further expand / the consumers of Country Z
could consume beyond the PPF (at point Q).
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ECON-MOCK15-ANS-2
(1)
Economics Mock Exam Paper 2 (Set 15)
Suggested Answers
Marks
Indicate on the diagram:
(d) (i)
Correct position of point Q
(1)
– Health
@1
– Education (knowledge)
max: 2
– Living standard (income)
[Mark the FIRST TWO points only.]
(ii)
The foreign elites are well-educated.
(2)
The foreign elites usually have higher income.
(2)
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