2014-DSE

ECON
PAPER 1
HONG KONG EXAMINATIONS AND ASSESSMENT AUTHORITY
HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION 2014

ECONOMICS PAPER 1

8.30 am - 9.30 am (1 hour)

INSTRUCTIONS

1. Read carefully the instructions on the Answer Sheet. After the announcement of the start of the
examination, you should first stick a barcode label and insert the in formation required in the spaces
provided. No extra time will be given for sticking on the barcode label after the 'Time is up'
announcement.

2. When told to open this book, you should check that all the questions are there. Look for the words'END
OF PAPER'after the last question.

3. All questions carry equal marks.

4. ANSWER ALL QUESTIONS. You are advised to use an HB pencil to mark all the answers on the
Answer Sheet, so that wrong marks can be·completely erased with a clean rubber. You must mark the
answers clearly; otherwise you will lose marks if the answers cannot be captured.

5. You should mark only ONE answer for each question. If you mark more than one answer, you will
receive NO MARKS for that question.

6. No marks will be deducted for wrong answers.

Not to be taken away before the

end of the examination session
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There are 45 questions in this paper. Choose the BEST answer for each question.

1. A famous football team, Manchester United, visited Hong Kong for a friendly match. The day before the
match, the team found the pitch in the Hong Kong Stadium had been damaged by prolonged rain and it
considered cancelling the match. The opportunity cost for Manchester United to continue playing in such a
poor pitch would because

A. increase ...… there was a higher chance for the players to get injured
B. increase ... …the team was likely to have poor performance
C. remain unchanged ... … the expense on the visit to Hong Kong had already been paid
D. remain unchanged …… the players spent the same amount of time in Hong Kong

2. Which of the following do(es) NOT exist in a barter economy?

(I) inflation
(2) interest
(3) comparative advantage

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

3. An economic good

A. is a good with its demand greater than its supply.

B. brings us more satisfaction than a free good.
C. is a good whose quantity available cannot satisfy human wants at zero price.
D. cannot be found free of charge in any economy.

4. Mei Ho House (美荷樓），a public housing block built in the l 950s, was recently graded as a historic building
in Hong Kong. The building was then turned into a hostel which provides double rooms, family rooms and
disabled rooms. The above case is related to the question(s) in Economics.

A. "how to produce"
B. "for whom to produce"
C. "what to produce" and "how to produce"
D. "what to produce" and "for whom to produce"
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5. The following table shows a production plan of a firm which employs two factors only, namely labour and
machinery.

Labour (unit) Machinery (unit) Total product (unit)

I 4 100
2 4 12Q
3 4 150
4 4 170
5 4 165

The marginal product of labour will start to diminish when the unit of labour is put to work.

A. second
B. third
C. fourth
D. fifth

6. The following table shows the cost-output relationship of a price taker

Output (unit) Total cost ($)

I 20
2 45
3 75
4 110
5 150

Given that the profit maximizing output of the firm is 3 units. If the fixed cost increases by$ 5, the price of
the good and the output will be and respectively.

A. $ 25 ...... 2 units
B. $ 30 ...... 2 units
C. $ 30 ...... 3 units
D. $ 75 ...... 3 Units

7. A public limited company plans to issue new bonds for expansion. For the existing shareholders, which of
the following is an advantage of issuing bonds instead of shares?

A. The accounts of the company need not be disclosed to the public.

B. They have priority in getting back their capital if the company liquidate 、
C. The interest paid to the bondholders is lower than the dividend paid to the shareholders.
D. Their power of control over the company will not be diluted
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8. Which of the following statements about partnership and sole proprietorship is correct?

A. Partnership has better continuity than sole proprietorship

B. Partnership has less flexibility in decision making than sole proprietorship
C. Partnership has more capital than sole proprietorship
D. Partnership enjoys more economies of scale than sole proprietorship.

9. Which of the following will increase the labour supply of an economy?

A. More firms allow male employees to take paternity leave.

B. More companies offer free transport to employees working overtime.
C. Universities ,provide more full-time associate degree programmes for secondary school
graduates.
D. The government adopts maximum working hours for the civil servants.

10. The following graph shows the relationship of the three stages of production. What do E and F stand for
respectively?

v ｀
Primary
Production

二
Psroduction 41 尸 Production

A. consumer goods; raw materials

B. producer goods; services
C. raw materials; services
D. producer goods; raw materials

11. Which of the following would most likely increase the occupational mobility of labour in an economy?

A. The labour unions have stronger bargaining power for the welfare of their members.
B. The labour department provides tuition fee rebates for participants of retraining programmes.
C. The transport network is improved by the extension of highways.
D. The government stops granting funding for an online data system about job vacancies

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12. In which of the following pairs does the demand for the first good create a derived demand for the second
one?

A. Aviation service and pilots

B. West Rail Line train service and Light Rail train service
C. Blu-ray discs and Blu-ray disc players
D. Hong Kong Disneyland and Ocean Park Hong Kong

13. Which of the following would reduce the elasticity of demand for the transport service of the Airport
Express?

A. There are more airport bus routes to different districts.

B. Vans are not allowed to pick up passengers at the airport.
C. The fare of the Airport Express is raised.
D. The maintenance cost of the Airport Express trains increases.

14. Suppose the equilibrium point of the cosmetic surgery market in Hong Kong is originally at E。. If people
become open-minded to cosmetic surgery while more regulations are imposed on the cosmetic surgery
. 、
industry, the new equilibrium point will be at

Price($)

D1

D2
O' > Quantity
AB C D

ElEzEJL

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15. Refer to the following supply-demand diagram for the Cross-Harbour Tunnel.

Toll

s
Existing toII .. - - - - - - - - - - - .. ------

D
。

Number of cars

The government proposed to raise the toll for the Cross-Harbour Tunnel so as to lessen the traffic congestion
during rush hours. Suppose the maximum vehicular volume ofthe tunnel is fixed. Which ofthe following
statements are correct?

(1) The demand for the service ofthe Cross-Harbour Tunnel will decrease.
(2) The total revenue ofthe Cross-Harbour Tunnel will increase.
(3) The deadweight loss caused by traffic congestion will decrease.
(4) The opportunity cost ofthe drivers using the tunnel will increase.

A. (1) and (3) only

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

16. Refer to the following demand and supply schedules ofa good.
的＿

Price $1 $2 $4 $5
80＿

Quantity demanded (unit) 120 100 75 60

80

Quantity supplied (unit) 60 75 100 120

According to the above information, we can conclude that

A. the total sales revenue would be $200 when the price is $2.
B. there would be a shortage of25 units when the government imposes a price floor at $4.
C. when a per unit subsidy of$2 was granted to the seller, the total revenue (including the subsidy)
would increase by $160.
D. when a per unit subsidy of$2 was granted to the seller, the equilibrium price would drop to $1.
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17. The table below shows the distribution of market share of supermarkets in Hong Kong in 2012.

Name Market share (%)

Wellcome 39.8
Parknshop 33.1
Vanguard 7.8
Others 19.3
｀
Total 100

From the above table, we can conclude that the market of supermarkets in Hong Kong is an example of
because

A. oligopoly ...... sellers are interdependent in their marketing strategies

B. oligopoly ……a few major sellers are in control of the total sales of the market
C. monopolistic competition …… sellers can affect the market price as their products are
heterogeneous from the consumers'viewpoint
D. monopolistic competition … …there are many sellers adopting non-price competition in the
market

18. Korean pop singers are becoming more popular in Hong Kong. To these singers, which of the following are
their private benefits?

(I) the rise in royalties from the sales of their albums

(2) the rise in sales revenue of Korean-designed fashion
(3) the rise in the number of tourists visiting Korea
(4) the rise in revenue shared from their concerts held in Hong Kong

A. (I)and (3)only
B. (I)and(4)only
C. (2)and (3)only
D. (2)and (4)only

19. Which of the following are ways to lessen the problem of divergence between private and social costs in
Hong Kong?

(1) to collect a sewage charge

(2) to collect a university tuition fee
(3) to collect a charge on electricity
(4) to collect a levy on plastic bags

A. (I)and (3)only
B. (I)and (4)only
C. (2)and (3)only
D. (2)and (4)only
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20. Which of the following polices can reduce the Gini coefficient based on post-tax post-social transfer
monthly household income in Hong Kong?

A. to raise the standard tax rate on salaries tax

B. to reduce the marginal tax rate on salaries tax
C. to reduce the amount of Comprehensive Social Security Assistance Schemes (綜合社會保障援
助計劃）
D. to grant an equal sum ofmoney to the Mandatory Provident Fund accounts of every employee

21. Which of the following are results of the government lowering an effective price ceiling on a good?

(I) a reduction in the producer surplus

(2) an mcrease m excess demand
(3) an mcrease m the total sales revenue if the demand is elastic

A. (1)and (2) only

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

22 . The imposition ofa per-unit sales tax on cosmetics will

A. reduce the total expenditure on cosmetics.

B. reduce the total sales revenue (net-of-the-tax).
C. increase the total social surplus in the cosmetics market.
D. increase the producer surplus in the cosmetics market.

23. Suppose the supply curves of cars and petrol are upward-sloping. If the government imposes an effective
quota on the production of cars,

A. the total social surplus in the car market will increase.

B. the producer surplus in the car market will decrease.
C. the total social surplus in the petrol market will decrease.
D. the consumer surplus in the petrol market will increase.

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24. The following diagram shows a production chain of a good in Economy X:

Raw
materials Export to China

尸1
from
Australia
Wholesale , Retaile , $400 Consumers
Raw Ill Ill of
materials Economy Economy ($60 sales Economy
tax
from X X inclusive) X
Thailand

What is the contribution of the production chain to the Gross Domestic Product(GDP) at marke t price of
Economy X?
3
AB c D

$＄
40905000
346
$＄

25.
Year Year-on-year percentage change in Year-on-year percentage change in
nominal GDP nominal government spendin
2011 9.0 12.0
2012 5.5 6.0

Base d on the above information, which of the following statements are correct?

(1) The size of the public sector in the economy increased in 2012.
(2) Both the nominal GDP and the nominal government spending droppe d in 2012.
(3) A drop in both the real GDP and the real government spending was possible in 2012.

A. (I) and(2) only

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

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26. Suppose a closed economy produces food and clothing only. The output of Year I and Year 2 are as follows:

Year Quantity of food Unit price of food Quanti clothing

'.

覃
unit) 二
l一

t三 二二
44
2

36 6

Which of the following statements about the economy are correct?

(I) The nominal GDP in Year I is higher than that in Year 2.

(2) The real GDP in Year l is higher than that in Year 2.
(3) The cost of living in Year l is higher than that in Year 2.

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

27.
Price level

SRAS 。

SRAS1
。

Aggregate output

Refer to the above diagram. Which of the following would most likely lead to the shift of the short run
aggregate supply curve from SRAS。 to SRAS 1 ?

A. to relax the quota for foreign domestic helpers

B. to reduce the subsidy in research and development
C. to increase the profits tax rate
D. to increase the number of places in tertiary education

28. The Old Age Living Allowance (長者生活津貼） introduced by the Hong Kong government increases the
in GDP and results in a shift of the aggregate demand curve.

A. government consumption expenditure …... rightward

B. government consumption expenditure …… leftward
C. private consumption expenditure …… rightward
D. private consumption expenditure …… leftward

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29. Ifthere is a decrease in national income ofa major trading partner ofan economy, the employment of the
economy will and the price level will in the short run.

A. increase .. . . . . increase
B. increase ...... decrease
C. decrease ..... . increase
D. decrease ...... decrease

30. Refer to the following balance sheet ofa banking system.

Assets ($ million) Liabilities($ million)

Reserves 400 Deposits 1 200
Loans 800

Suppose the required reserve ratio is 25%. Ifall banks loan out their excess reserves, which of the following
statements about the above banking system is correct?

A. The amount ofreserves held by the banks will decrease.

B. · The maximum banking multiplier will increase.
C. The money supply will .remain unchanged.
D. The maximum possible increase in loans will be the same as the maximum possible increase in
deposits.

31. Maggie plans to deposit $500 000 in a financial institution in Hong Kong for two months. Which ofthe
following institutions can accept this deposit?

(I) licensed banks

(2) restricted licence banks
(3) deposit-taking companies

A. (1) and(2) only

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

32. The nominal interest rate of a one-year bond and the ex2ect�<i_ inflation rate are 8% and 3% respectively. If
the actual inflation rate is 6%, then the actual real interest rate is____ -·· · · _ and the actual rate ofreturn of
holding cash is

A. 2% ...... -6%
B. 2% ...... -8%
C. 5% ...... -6%
D. 5% ...... -8%

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 o
33. Study the following inf rmation about an economy.

Monetary base $500 billion

The coins and notes circulated in the public $300 billion
Required reserve ratio 20%

If all the banks are fully loaned up, the amount of deposits will be .

A. $1 000 billion
B. $1 500 billion
C. $2 500 billion
D. $4 000 billion

34. Deflationary (output) gap

A. will be widened when there is a depreciation of the domestic currency.

B. will be eliminated by a rightward shift of the aggregate demand curve when the market adjusts
from short run equilibrium to long run equilibrium.
C. will result in a downward pressure on the prices of inputs.
D. will exist if the aggregate demand falls short of the short run aggregate supply.

35. Which of the following policies can the government introduce to reduce the price and unemployment levels
at the same time?

A. to raise the discount rates

B. to raise the subsidies to small and medium-sized enterprises
C. to raise the salaries tax rate
D. to raise the expenditure on social welfare

36. The government plans to impose a new tax under which the tax payment drops when taxable income drops
Which of the following statements about the new tax is correct?

A. The tax is regressive as the tax rate increases when the taxable income drops.
B. The tax is proportional as the taxable income and the tax payment are positively related.
C. The tax cannot be progressive as the tax rate increases when the tax payment drops.
D. The tax can be progressive, proportional or regressive.

37. Suppose the velocity of circulation of money remains constant. If a central bank reduces money supply
by 10%,

A. the price level will decrease by I 0%.

B. real output will decrease by 10%.
C. nominal output may decrease by less than I 0%.
D. real output may decrease by less than 10%

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38. Which of the following government policies will lead to an increase in the aggregate output ofa country in
the long run?

(I) to tighten regulations on environmental protection

(2) to grant an amnest�(特赦） to illegal immigrants
(3) to ban the importation of foreign domestic helpers
(4) to build more international schools for attracting expatriates to work in the country

A. (I) and (3) only

B. (I) and (4) only
C. (2) and (3) only
D. (2) and (4) only

39. In the diagram below, A is situated in a certain phase of the business cycle.

% change in real GDP

average
growth rate
。

Year

At Point A, there will be an increase in in the economy.

(1) the labour employment level

(2) the general price level
(3) the sales of firms
(4) transfer payments

A. (1) and (2) only

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

40. Which of the following statements about inflation is/are correct?

1 Inflation occurs when the government handouts a large sum of cash to every citizen m a certain year.
(2) Inflation redistributes wealth from lenders to debtors if it is anticipated.
(3) People prefer holding real assets to cash under expected inflation.

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

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41. The following table shows the number of man-hours required by Country A and Country B in the production
of GoodX and Good Y.

I unit of GoodX I unit ,of Good Y

Country A IO units 25 units
Country B 5 units 15 units

Trade is mutually beneficial between Country A and Country B when the terms of trade is

A. 1X = 0.35)'
B. IX = 0.4Y
C. 1X = 1.25Y
D. IX = 2.75Y

42. Suppose South Korean Won depreciates against the US Dollar. Under the linked exchange rate system of
Hong Kong, which of the following would be results of the above change in the exchange rate?

(1) The volume of imported goods from South Korea to Hong Kong would increase.
(2) The price of exported goods from Hong Kong to South Korea in terms of HK dollar would increase.
(3) The number of tourists from South Korea to Hong Kong would decrease.

A. (I) and ( 2) only

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

43. Which of the following is included in the calculation of the balance of Hong Kong's current account?

A. A mainland investor purchases a house in Hong Kong.

B. A Hong Kong investor buys shares issued by a mainland listed company.
C. A mainland resident buys an air ticket to Hong Kong from a mainland airline.
D. A Hong Kong resident buys a life insurance policy from a mainland insurance company.

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44. The following table shows the data about Country A.

P etroleum Rubber
(unit) (unit)
Total output with no international trade
Total output with specialization and international trade
Total consumption with international trade
。
60

90
and
and
and
90
210
120

Which ofthe following statements about Country A is correct?

A. Country A has both absolute advantage and comparative advantage in producing rubber.
B. The gain from trade ofexporting I unit ofrubber is l unit ofpetro Ieum.
C. The opportunity cost ofproducing l unit ofrubber(R) is 2/3 units ofpetroleum(P) and the terms
oftrade is IR= 3/4 P.
D. Country A can benefit from trading with Country B, whose opportunity cost ofproducing I unit
ofrubber is 2 units of petroleum.

45. The following diagram shows the imposition ofan import tariff on a good in a small open economy.
＄

P」 = world price

P 」 +t t = per unit tariff

P1
D
。

Quantity
02 Q3

After the imposition of the tariff, which ofthe following statements about the good in this economy is
INCORRECT?

A. The volume ofimports is (Q 3 - Q2 ) units.

B. The domestic consumption is Q 3 units.
G. · The increase in producer surplus of the domestic producers is area a.
D. The total amount oftariff is the sum ofareas b, c and d.

ENDOFPAPER

Sources of materials used in this paper will be acknowledged in the Examination Report and Question Papers
published by the Hong Kong Examinations and Assessment Authority at a later stage.

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