DSE-ECO-MK1-12a

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HKDSE ECONOMICS Mock Exam Paper Practice

2012 HKDSE Economics Mock Exam Paper 1
Set 1
Time limit: 1 hour

Prepared by Andy Lai





Enrollment Hotline: 6772 3001 Website: www.andylai.hk MSN: mrandylai@hotmail.com
Address: Rm706, Prosper Commercial Building, 9 Yin Chong Street, Mong Kok, Kowloon, Hong Kong.

2012 HKDSE Economics Paper I Set 1 Suggested Answers
1. A 2. A 3. D 4. B 5. A
6. C 7. B 8. C 9. A 10. C
11. A 12. C 13. C 14. A 15. C
16. B 17. B 18. C 19. C 20. B
21. B 22. D 23. C 24. D 25. D
26. C 27. C 28. B 29. B 30. D
31. D 32. C 33. C 34. B 35. A
36. D 37. C 38. A 39. B 40. D

Distribution of questions:
Section Question no. Percentage No. of questions
A. Basic Economic Concepts 1, 2, 3 7.5% 3
B. Firms and Production 4, 5, 6, 7, 8, 9 15% 6
C. Market and Price 10, 11, 12,
13, 14, 15, 16
17.5% 7
D. Competition and Market
Structure
17 2.5% 1
E. Efficiency, Equity and the
Role of Government
18, 19, 20 7.5 3
F. Measurement of
Economic Performance
21, 22, 23 7.5 3
G. National Income
Determination and Price
Level
24, 25, 26 7.5% 3
H. Money and Banking 27, 28, 29, 30 10% 4
I. Macroeconomic Problems
and Policies
31, 32, 33,
34, 35, 36
15% 6
J. International Trade and
Finance
37, 38, 39, 40 10% 4

sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 1
Multiple choices Questions: Choose the BEST answer in every question.

1. Which of the following statement is INCORRECT?

A. Law of demand is a normative statement.
B. Interests still exists in the absence of money, risks and a banking system.
C. When there is a shortage, there must be scarcity.
D. Free goods must be free of charge.


2. After sitting for the 2012 HKDSE Economic exam, Andy bought a ticket worth HKD 50 to
watch a movie. After watching half an hour, Andy found that it was very boring and
expected the remaining part of the movie was also boring too. Therefore, he decided to
leave the cinema to prepare the suggested solutions of 2012 HKDSE Economic
examination which will be post on the website of A Lai Learning Center for FREE
download. Which of the following statement is CORRECT?

A. The opportunity cost of leaving the cinema to prepare the suggested solutions remains
unchanged even if the ticket price was HKD 500 instead of HKD 50.
B. The opportunity cost of leaving the cinema to prepare the suggested solutions decreases if
the remaining part of the movie is much more exciting than Andys expectation.
C. The suggested solutions of 2012 HKDSE Economic examination is a free good.
D. Andy did not face scarcity in the situation above since he already made his own decision.


3. Which of the following statements is / are CORRECT?

(1) Without specialization, exchange cannot take place.
(2) With specialization, more goods can be produced in a given period of time.
(3) Private property rights are an essential prelude for market transcations.

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

sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 2
4. Compared with Andy Lai (a tutor in Hong Kong), Andy Lau (a famous idol in Hong Kong)
has a lower occupational mobility because

A. The cost of being a tutor is lower than being a singer.
B. The cost for Andy Lai to change his occupation is lower than that for Andy Lau.
C. Andy Lau has spent a long time to become a famous idol.
D. A tutor is not a professional occupation in Hong Kong.


5. Which of the following is /are an advantage(s) of partnership over private limited
company with only one shareholder?

(1) Wider source of capital
(2) More capital
(3) More expertise in decision making

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


6. Which of the following statements about factors of production is INCORRET?

A. Land can increases over a period of time.
B. Land may be geographical mobile.
C. Labour must be variable cost.
D. Capital accumulation can be interpreted as giving up present consumption for future
consumption.


7. Which of the following statements about public goods is CORRECT?

A. A public good is a good provided free-of-charge.
B. Public goods may let people enjoying the good or service making a small contribution less
than their benefit.
C. There is no competition in producing public goods.
D. A public good is a good that more of it is not preferred.

sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 3
8. When average product is increasing, the marginal product

A. must be rising.
B. must be falling.
C. must be higher than the average product.
D. must be lower than the average product.


9. The following table shows the fall in total output of a factory when there are sick workers
who cannot come to work.

No. of sick workers absent from work Decrease in daily output (units)
2 160
3 X
4 170
5 190
6 200

If the law of diminishing marginal returns applies to the firm when there is 3 workers absent
from work , which of the following is the possible value of X?

A. 164
B. 166
C. 168
D. 170


10. Which of the following statement is INCORRECT?

A. Demand of a product of a customer represents the amount quantity that the customer is
willing and able to buy at different price levels.
B. Per unit tax charged to a supplier in a product may not cause the supply curve of the
product shift upwards.
C. Consumer surplus is equal to the maximum willingness to pay.
D. Imposition of effective quota of may leads to a increase in quality of the product.

sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 4
11. Suppose the equilibrium quantity of economic reference books written by Andy is 2000
units. After 2012 HKDSE examination, Andy become more famous liked by more students.
As a result of this, the percentage change in equilibrium price is 20% and the quantity of
economics reference books written by Andy become 4000. We can know that the
of economic reference books written by Andy is .

A. supply elastic
B. supply inelastic
C. demand elastic
D. demand inelastic


12. Imagine you are now in a desert. You feel very thirsty. Andy has a few bottles of water.
Your demand schedule for bottle water is as follows:

Price Quantity Demanded
15 1
14 2
13 3
12 4
11 5
10 6
9 7

Suppose Andy sells bottle of water at 10 dollars each and you have to pay him a membership
fees of $9 before you can buy bottle of water from Andy. What is the amount of your
consumer surplus?

A. $8
B. $7
C. $6
D. $5

sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 5
13. The demand for can be regarded as a derived demand of .

A. examination tutorial class
B. bottle water tap water.
C. construction workers construction of railway
D. toner printer


14. Suppose the original equilibrium price and equilibrium quantity of Andys figures is $30
and 100 units respectively. After the imposition of a per unit sales tax of $3 to the supplier
and the decrease in the cost in raw materials to produce the figures, the equilibrium price
and equilibrium quantity remains unchanged at $30 and 100 units respectively. What is
the possible change in the equilibrium price if there is an abolishment in the per unit sales
tax but the cost in raw materials still decrease at the same level?

A. $2
B. $3
C. $4
D. No change


15. The price of Andys note is increased by 20% and the quantity demanded of Andys note is
increased by 20%. Which of the following is a possible reason?

A. The elasticity of demand for Andys notes is equal to one.
B. The demand for Andys note does not comply with the law of demand.
C. Andy becomes a much more popular teacher.
D. HKALE and HKCEE are cancelled.


16. The imposition of a per-unit tax on a good whose supply is perfectly inelastic will lead to

A. a growth in the consumption of the good.
B. a drop in the producer's profit.
C. a rise in the price of the good.
D. the tax burden to be shared between the consumers and producers.

sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 6
17. Which of the following statements about market structure is / are INCORRECT?

(1) Sellers in perfect competition are price searchers.
(2) There is no close substitute for the products of monopoly.
(3) Sellers in monopolistic competition are interdependent.

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


18. For the sake of the health of Hong Kong people, statutory no smoking areas have been
extended to cover the indoor areas of all restaurant premises, indoor workplaces, public
indoor places, and some public outdoor places. No person shall smoke or carry a lighted
cigarette, cigar, or pipe in no smoking area. Which of the following is CORRECT?

A. This will eliminate the divergence between private and social costs with respect to the
effects generated by smoking in public.
B. This will reduce the divergence between private and social costs of public smoking.
C. This may increase the divergence between private and social costs of public smoking.
D. The resources in society is allocated more efficiently after this law passed.


19. If there is per unit sales tax charged to the producer,

A. this will cause efficient use of resources if the per unit sales tax is equal to the external cost
of quantity equal to equilibrium level.
B. this will eliminate the divergence between the private benefits and social benefits.
C. this will decrease the consumer surplus.
D. this will cause efficient use of resources since the tax burden born by the producers and
consumers can be used by the government in other areas.

sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 7
20. The graph below shows the Lorenz curves of Country A and Country B. Suppose they
have the same Gini coefficient. We can conclude that

(1) There are more people in the lower-income group in Country B.
(2) The lower income group in Country B earns a higher percentage of the total income.
(3) The income distribution between two countries is the same due to their same gini
coefficient.

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


21. Which of the following about national income of a country is INCORRECT?

A. Andys expenditure on a first-hand house in Sai Kung should be included in the
investment account of national income accounting.
B. If the consumer price index is 120 in 2011, it means its price level is higher than that in the
previous year.
C. The LED Television in A Lai Learning Center is a final good.
D. Depreciation of capital is included in calculating GNP.

sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 8
22. In country A, the growth rate relative to previous year of the nominal GDP, General price
level and population is -3%, -4% and 2% respectively in 2010. Moreover, the growth rate
relative to previous year of the nominal GDP, General price level and population is 0%,
-2% and -1% respectively in 2011. Which of the following statement is INCORRECT?

A. The nominal GDP in the 2010 and 2011 are the same.
B. Compared with the previous year, the real output increased in 2010.
C. The general price level is decreasing at a slower rate from 2010 to 2011.
D. The per capita real GDP decreased in 2011.


23. Study the following information about an open economy below:
1200 , 125 . 0 20 , 120 , 2 . 0 , , 100 , 9 . 0
__
= + = = = = = =
f d
Y Y M X Y T G G I Y C where
C = Consumption expenditure, =
d
Y disposable income, I = investment expenditure,
G = government expenditure, T = tax, Y = national income, X = export, M = import,
=
f
Y full employment income
Suppose the government controls its expenditure for different policy objectives.

To achieve a trade balance, the government expenditure should be (1) ;
To achieve full employment income level, the government should have a (3) .
To achieve a fiscal balance, the national income level should be (2) ;

(1) (2) (3)
A. 100 fiscal surplus of 74 748
B. 100 fiscal deficit of 74 822
C. 124 fiscal deficit of 46 976
D. 124 fiscal surplus of 46 1024

sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 9
24. Which of the following situation will cause the short run aggregate supply curve shift to
the left?

(1) A temporary unfavorable or negative supply shock
(2) Expectation of rising price level
(3) A rise in sales tax

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


25. If the Hong Kong government increases its education expenditure, It will cause

(1) LRAS shift to the right.
(2) SRAS shift to the right.
(3) AD shift to the right

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


26. In the long run, a decrease in aggregate demand would cause

(1) a decrease in the real output.
(2) the SRAS shifting to the right.
(3) a drop in the equilibrium price level.

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

sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 10
27. Which of the following about the Hong Kong banking system is INCORRECT?

A. Interest rate in the banking system is determined by the market force.
B. There is no minimum required reserve ratio in Hong Kong banking system.
C. Because of the linked exchange rates system, the exchange rate of USD to HKD is equal to
1 to 7.8 in the foreign exchange market.
D. Hong Kong dollar banknotes are fully backed by Foreign exchange reserves held by Hong
Kong monetary authority.


28. Study the following balance sheet of a banking system and answer questions 20 and 21.

Assets ($) Liabilities ($)
Reserves 3000 Deposits 10000
Loans 5000
Investment 2000

Suppose the banking system has an excess reserve of $1000 and the public does not hold cash. The government
buys $1000 worth of bonds from the commercial banks. The maximum possible amount of loans and monetary
base will be ______ and ______ .

A. $13000 $3000
B. $15000 $4000
C. $18000 $4000
D. $20000 $5000


29. Study the following balance sheet of a banking system. Suppose the banking system is fully
loaned up and the public keeps $1 cash for every $4 deposit.

Assets ($) Liabilities ($)
Reserves 250 Deposits 1000
Loans 800

Suppose $500 of newly printed bank notes are issued. What will be the new amount of deposits in
the banking system after the deposit creation process ?

A. 1500
B. 2000
C. 2500
D. 3000

sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 11
30. Which of the following can explain the movement along the total demand for money
curve?

(1) Expectations of a decrease in bond prices.
(2) A rise in bond prices
(3) An increase in inflationary expectation

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


31. The assets and liabilities of four persons are listed below:

Andy Ruby Ricky
Monetary assets $200 $200 $200
Monetary liabilities $150 $100 $50
Real assets $100 $250 $300
Real liabilities $100 $300 $200

Who will gain from an unanticipated inflation?

A. Andy
B. Ruby
C. Ricky
D. All of them will lose from an unanticipated inflation.


sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 12
32. Which of the following about the equation of exchange and the quantity theory of money is
INCORRECT?

A. The continuous rise in prices can only be sustained by continuous increases in the money
supply.
B. According to the classical quantity theory of money, the money demand is a constant
fraction of nominal income.
C. The equation of exchange is an identity and predicts that money affects both price level
and real output in the short run and only real output in the long run.
D. According to the equation of exchange, the money supply grows more slowly than the
nominal GNP, we can conclude that the velocity of circulation is rising.


33. Which one of the following is the BEST indicator to show a country experiencing a
recession?

A. There is an continuous increase in employment rate.
B. The price level is decreasing at a faster rate.
C. There is a continuous decrease in the real GDP.
D. There is a negative growth rate of nominal GDP.


34. Which of the following about a deflationary gap is CORRECT?

A. Full employment income is below the equilibrium income.
B. A deficit budget should be used to eliminate the gap.
C. The economy has enough aggregate demand to achieve full employment.
D. Real GDP is higher than the nominal GDP.


sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 13
35. Which of the following statement(s) about monetary policy is / are correct?

(1) There is no independent monetary policy the Hong Kong government can pursue to solve
the problem of unemployment.
(2) A sale of government bonds by the central bank is a contractionary monetary policy.
(3) A revaluation of domestic currency.

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


36. Which of the following statement(s) about fiscal policy is / are CORRECT?

(1) A deficit budget will have an expansionary effect on economic activity.
(2) The introduction of general sales tax will follow a decrease in the sales revenue net of tax
to the seller.
(3) During the economic depression, the ratio of direct to indirect tax revenue in the economy
usually decreases.

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


sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 14
37. A countrys terms of trade will be better when

A. The volume of imports decreases at a faster rate of that of the volume of exports.
B. The value of total imports has going down relative to the value of total exports.
C. The ratio of export price to import price to import price increases.
D. The currency of its own country depreciates.


38. When a country has a trade deficit,

A. domestic product is lower than domestic spending.
B. national saving is higher than domestic investment.
C. the net capital flow is negative.
D. None of the above.


39. Consider a country imposing a quota on an import. The diagram below shows a countrys
supply of and demand for the good.

If the quota raises the domestic price of the good from Pw to Pw, which of the following
statement is INCORRECT?

A. The total loss in consumer surplus is equal to sum of area 1, 2, 3 and 4.
B. The quotas holder surplus is equal to area 3 if the quota is not free of charge.
C. The deadweight loss is equal to sum of area 2 and 4.
D. The import volume before imposition of quota is equal to Q3 Q2.

sir DSE-ECO-MK1-121
2012 HKDSE Economics Mock Exam Set 1 Paper 1
2012 A Lai learning Center. ALL RIGHTS RESERVED.
www.andylai.hk Prepared by Andy Lai
P. 15
40. Consider a small country imposing a tariff on an import. The diagram below shows the
countrys supply of and demand for the good.

If the tariff rises the domestic price of good from Pw to Pw, which of the following statement
is INCORRECT?

A. Consumers are better off when compared to the situation without trade.
B. Government revenue is equal to area 3.
C. There is a deadweight loss equivalent to sum of the area 2 and 4
D. Producer surplus is equal to area 1.


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