Form 4 Economics Final Exam 2015-2016

1. Which of the following will result in a change in quantity demanded for a good?

A. An increase in consumers income

B. Seasonal weather change
C. Consumers expect the price of the good will change soon
D. A change in the price of good

2. Holding other factors constant, a rise in the price of Good X will lead to a fall in the total
revenue of Good Y if

A. Good X and Good Y are complements.

B. Good X and Good Y are substitutes.
C. Good X and Good Y are joint supply.
D. Good X and Good Y are competitive supply.

3. Which of the following will result in a decrease in the supply of a good?

A. A decrease in the cost of production of the good

B. An improvement in the production technology
C. Producers expect the price of the good will increase soon
D. A decrease in peoples income

4. Tommy and David have turned their firm from a partnership into a private limited
company. Which of the following statements is correct?

A. They have a higher incentive to work as the profits tax rate is lower.
B. The firm can still exist even if one of the owners goes bankrupt.
C. The size of the firm will increase.
D. The financial conditions of the firm have to be disclosed to the public.

5. An increase in tobacco duty will lead to

A. a rise in government tax revenue from cigarettes.

B. a rise in smokers total expenditure on cigarettes.
C. a fall in the total market value of cigarettes.
D. a fall in cigarette retailers total revenue net of tax.

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Form 4 Economics Final Exam 2015-2016

6. With a budget of $6000, Kelly is considering three options. Each choice costs $6000.
Kellys order of preference is as follows:

1st choice: Traveling to Japan

2nd choice: a valuable watch
3rd choice: a hi-fi stereo system

Suppose Kellys preference does not change. Which of the following statement is correct?

A. Kellys opportunity cost of travelling to Japan is a valuable watch and a hi-fi.

B. Kellys opportunity cost of travelling to Japan will increase if she finds that a free
concert ticket is included with the hi-fi.
C. Kelly decides to travel to Japan because its opportunity cost is the highest.
D. Kelly decides to travel to Japan because its opportunity cost is the lowest.

7. A worker is paid by the quantity he produced instead of receiving a monthly salary.

Which of the following statements is INCORRECT?

A. The worker tends to produce more output.

B. The quality of the output tends to be lower.
C. The cost of monitoring the worker regarding shirking will be lower.
D. The income of the worker will increase.

8. When goods of the same proportion are allocated by both price mechanism and
government decisions, this describes what kind of economy?

A. It is a traditional economy.
B. It is a planned economy.
C. It is a market economy.
D. It is a mixed economy.

9. When the price of milk increase by 10%, Dave will reduce the amount he buys by 20%.
On the other hand, when there is a 20% price reduction in soft drinks Daves quantity
demanded increases by 40%. This implies that

A. Daves price elasticities of demand for milk and for soft drinks are the same.
B. Dave has a higher elasticity of demand for milk than for soft drinks.
C. Dave has a lower elasticity of demand for milk than for soft drinks.
D. We cannot determine Daves price elasticities of demand for milk and for soft drinks.

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Form 4 Economics Final Exam 2015-2016

10. The following table shows the monthly production of a firm with two inputs, machines
and labour.

Machines (Units) Labour (Units) Total product (Units)

2 5 10
3 5 20
4 5 32
5 5 42
6 5 X

If the law of diminishing marginal returns applies to the firm, X

A. must be smaller than 42.
B. must be greater than 42.
C. can be equal to 42.
D. is equal to 52.

11. When a singer held concerts, many fans queued up all night for the tickets. However,
some of them failed to get the tickets. This implies that

A. Fans wants are unlimited.

B. The tickets are being sold below the equilibrium price, leading to a shortage.
C. The concert tickets are free goods.
D. There is a change in demand due to the successful promotion of the concert.

12. Which of the following are features of a perfectly competitive market?

(1) The marginal revenue of each firm equals the market price.
(2) The sellers and buyers have perfect market information.
(3) The marginal cost schedule of a firm is the same as its supply schedule.

A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

13. Which of the following descriptions about the relationship between the three types of
production is correct?

A. Primary production provides raw materials for the other types of production.
B. Secondary production does not rely on tertiary production to produce finished goods.
C. Tertiary production relies only on primary production.
D. The three types of production are independent, and tertiary production is the most
important.

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Form 4 Economics Final Exam 2015-2016

14. The abolition of an effective quota on an imported good will result in

(1) A fall in its price.

(2) An increase in its imported volume.
(3) An increase in its total sales revenue.
(4) An improvement in its quality.

A. (1) and (2) only

B. (1) and (3) only
C. (1), (2) and (4) only
D. (2), (3) and (4) only

15. A firm increases all its inputs to double its output. The following table shows the change
in total cost after a change in output.

Total Output (Units) Total Cost ($)

10 000 60 000
20 000 140 000

Based on the above information, we can conclude that

A. the firm enjoys economies of scale.
B. the firm suffers from diseconomies of scale.
C. the firm cannot cover its cost after doubling the output.
D. the optimal scale of production is 10 000 units of output.

16. Which of the following industries is least likely to practice division of labour?

A. Garment industry
B. Restaurant industry
C. Karaoke industry
D. Ivory carving industry

17. Which of the following statements about interest are correct?

(1) Interest is a premium received for postponing current consumption.

(2) An interest rate does not exist in a barter economy.
(3) A fall in the interest rate increases present consumption.

A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

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Form 4 Economics Final Exam 2015-2016

18. Which of the following is the most likely effect of an effective minimum wage law?

A. Income distribution will become more even.

B. Total wage earnings of workers will rise.
C. The employed population will increase.
D. Non-price competition will emerge.

19. Refer to the following demand and supply schedules of good X.

Unit price ($) 20 18 16 14 12 10

Quantity demanded 500 550 600 650 700 750
(units)
Quantity supplied (units) 800 750 700 650 600 550

If the government lowers the quota from 700 units to 550 units,
A. the market price will drop by $2.
B. the market price will rise by $2.
C. the market price will rise by $4.
D. the market price will rise by $6.

20. Which of the following is not a reason for Maxims setting up branches?

A. To enjoy marketing economies

B. To financial economies
C. To enjoy the benefits of research and development
D. To enjoy diminishing marginal returns

21. Which of the following is INCONSISTENT with the law of demand?

A. An imposition of an import quota on garments will lead to an improvement in the

average quality of imported garments.
B. People who live in remote areas tend to buy better seats at concerts held in the town
centre.
C. An increase in unemployment allowance raises the unemployment rate.
D. If an additional lump-sum charge is imposed per taxi trip, the number of short-distance
trips will fall by a smaller percentage than the number of long-distance trips.

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Form 4 Economics Final Exam 2015-2016

22. Which of the following statement about a sole proprietorship is false?

A. It has one owner only.

B. It does not have to disclose its financial conditions publicly.
C. It can raise capital by issuing shares.
D. It can hire professionals to manage the firm.

23. Suppose ParknShop takes over Wellcome supermarket. This is a

A. Horizontal integration
B. Vertical integration
C. Lateral integration
D. Conglomerate integration

24. Which of the following is an example of lateral expansion of a firm?

A. A telephone company combines with a telegram company.

B. A restaurant combines with a supermarket.
C. A hospital sets up a school to train student nurses.
D. A furniture company combines with another furniture company.

25. Mr. Chan spent $5 000 on buying a new mobile phone which can be sold for $7 000 in
the second-hand market. Mr. Chans cost of keeping the mobile phone is __________.

A. $0
B. $2 000
C. $5 000
D. $7 000

26. In the absence of scarcity,

(1) there will be no discrimination.
(2) there will be no market price.
(3) there will be no goods.

A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

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Form 4 Economics Final Exam 2015-2016

27.

28. A parking lot in the government headquarter is reserved for government officials. The
parking lot is ____ because _______.

A. a private good it is for private use only

B. a private good concurrent consumption is not possible
C. a public good the government owns it
D. a public good no one has an exclusive right to use

29. Which of the following are positive statements?

(1) Importation of labour from the mainland would result in a rise in job vacancies in Hong
Kong.
(2) It would be better to import labour from Guangdong province because they can speak
Cantonese.
(3) Productivity of labour from China is higher than that from other Southeast Asian
countries.
(4) Unemployment rate in Hong Kong would raise by 15% as a result of labour
importation of 30 000 from the mainland.

A. (1) and (2) only

B. (3) and (4) only
C. (1), (3) and (4) only

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Form 4 Economics Final Exam 2015-2016

D. (2), (3) and (4) only

30. A firm has an independent legal entity but the owners cannot transfer their ownership without
the consent of the other owners. When the owners want to expand the firms business, they can
________.

(1) Use the retained profit of the firm

(2) Issue shares to the public to raise capital
(3) Borrow from friends to raise capital

A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

31. 759 Store, a local retailer of imported snacks, expands its business to sell cosmetics and
skincare products. Which of the following is LEAST likely motive behind the expansion?

A. To reduce competition
B. To enjoy economies of scale
C. To expand its brand name to other products
D. To spread risk by business diversification

32. The table below shows the total product of Firm A, which employs only capital and labour in
production.

Labour (units) Capital (units) Total Product (units)

12 2 110
12 3 130
12 4 160
5
12 X

Which of the following statements about Firm A is correct?

A. If the above data illustrate the law of diminishing marginal return, the value of X can be
equal to 180.
B. If the above data illustrate the law of diminishing marginal return, the value of X can be
equal to 190.
C. If the above data illustrate the law of diminishing marginal return, the value of X can be
larger than 200.
D. The law of diminishing marginal return does not apply to Firm A because capital is not a
fixed factor.

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Form 4 Economics Final Exam 2015-2016

33. The table below shows the relationship between the price of and the total expenditure on ice-
cream.

From the above table, we can conclude that the elasticity of demand for ice-cream is _______
(without regard to its negative sign)

Unit price ($) 5 6 7 8

Total expenditure ($) 25 30 35 40

A. between zero and one

B. equal to zero
C. larger than one
D. equal to one

34. Which of the following will result in a rise in the total revenue of chicken farms?

A. The price of chicken feed falls.

B. The government reduces the profits tax rate on chicken firms.
C. The effective quota on the sale of chickens is increased.
D. The government reduces the subsidy for the production of pork.

35. Suppose the European Union imposes an import surcharge on China-made leather shoes
exported to its member countries. In the member countries of the European Union,
A. the price of these goods will rise.
B. the price of these goods will fall.
C. the total expenditure on these goods will rise.
D. the total expenditure on these goods will fall.

36. The government provides a per-unit subsidy of $10 on producing green products. The market
price drops by $6 as result. Which of the following statements about the green product market
is/are correct?

(1) The supply of green products is more elastic than their demand.
(2) Consumers enjoy more subsidy benefits than producers.
(3) The demand for green products increases.

A. (2) only
B. (1) and (2) only
C. (1) and (3) only
D. (1), (2) and (3)

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Form 4 Economics Final Exam 2015-2016

37. Many people queued up for days the tickets to watch the show of Tsz-Wah, a famous artist
performing stand-up comedy. Some people complained that they were unable to buy tickets even
though they were willing to pay the ticket price set by the organiser. The above situation implies
that

A. Price was the only criterion for allocating the tickets.

B. The producer was not maximising its profit
C. A black market for the tickets might emerge.
D. There was an effective price ceiling in the ticket market.

38.

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Form 4 Economics Final Exam 2015-2016

39. Refer to the following table for the supply and demand schedule for a good.

Unit Price ($) 4 5 6 7 8

Quantity demanded (units) 16 14 12 10 8
Quantity supplied (units) 14 14 14 14 14

The government imposes a $2 per unit tax on the good. Which of the following statements about
the good in correct?

A. Sellers revenue net of tax is $70.

B. Thenewmarketis$6.
C. The total tax revenue is $28.
D. The above information is insufficient to determine the tax burden on sellers.

40. Which of the following statements about the theme park industry in Hong Kong is correct?

A. Hong Kong Disneyland is a monopolist because its average cost of production drops
when there are more tourists.
B. Hong Kong Disneyland guarantees a profit because it is protected by the government.
C. Hong Kong Disneyland and Ocean Park Hong Kong have no competition with each other
as tourists may go to both theme parks.
D. Hong Kong Disneyland and Ocean Park Hong Kong are interdependent in their
marketing strategies.

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Form 4 Economics Final Exam 2015-2016

Short Questions

1. Mr. Chan & Mr. Lee are secondary school teachers. They earn the same salary of
$30,000 a month.
a) Define opportunity cost.
b) Explain whether Mr. Chans and Mr. Lees opportunity cost of being a teacher is the
same.
c) Explain whether the opportunity cost of quitting their jobs as teachers would be the
same.

2. The following is a conversation between the owner of Happy Game Centre and one of his
staff.
Staff: Why don't we raise the price to increase our total revenue?
Owner: A price rise will only lead to a decrease in our total revenue.
Explain the owners point of view with the aid of a diagram (5 marks)

3. Harry: Water stored in reservoirs is an economic good.

Ivy: No, water is a free good, not an economic good.
a) Define free goods and economic goods (4 marks)
b) Who is correct? Explain your answer. (3 marks)

4. Does principal belong to entrepreneurship? Why/ Why not? (4 marks)

5. Chinachem Group is one of the property developers in Hong Kong. Unlike other major
developers, Chinachem Group does not list its shares on the stock market. State TWO
advantages and TWO disadvantages of being a private limited company instead of a
listed company.
(4 marks)

Long Question

1. The earthquake in Japan greatly damaged the production facilities of memory products like
Secure Digital (SD) cards. As a result, the prices of these products rose. With the aid of a
diagram, explain under what condition the total expenditure of Japanese consumers on the
memory products would fall. (7 marks)

2. Given a fixed wage rate, explain with the aid of a supply-demand diagram why a decline in the
business of the financial sector due to the financial tsunami would increase unemployment in this
sector. Also indicate in the diagram the loss in total wage earnings of the employees in this sector.
(9 marks)

3. Many countries have considered imposing soft drink tax for health reasons. Suppose a
country decides to impose a per unit tax on the sellers for every bottle of soft drink sold in the
market.

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Form 4 Economics Final Exam 2015-2016

(a) Under what condition will the soft drink buyers in the country bear a greater tax burden than
the sellers? Illustrate your answer with a supply-demand diagram. (5 marks)

. (b) Using the same diagram in (a), indicate the change in consumer surplus after the tax
is imposed. (1 mark)

(c) As the amount of tax imposed on each bottle is the same irrespective of the bottle size, the
proportion of larger-bottle soft drink sold in the market will increase. Explain this argument
using the law of demand. (5 marks)

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