Mock Test 8 Paper 2 PDF

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ECONOMICS INQUIRY FOR HKDSE

Candidate Number
HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION
ECONOMICS PAPER 2
(Mock Test 8)
Question-Answer Book Marker’s
Use Only
Examiner’s
Use Only
Marker No. Examiner No.
Time allowed: 2 hours 15 minutes

This paper must be answered in English Question
Marks Marks
No.
INSTRUCTIONS 3
(1) After the announcement of the start of the examination, you 4

should first write your Candidate Number in the space
5
provided on Page 1 and stick barcode labels in the spaces
provided on Pages 1, 3, 5, 7, 9 and 11. 6
(2) This paper consists of three sections, A, B and C. Answer 7

ALL questions in sections A and B. Attempt any ONE
question in section C. 8
(3) Write your answers in the space provided in this 9

Question-Answer Book. Do not write in the margins.
Answers written in the margins will not be marked. 10
(4) Supplementary answer sheets will be supplied on request. 11

Write your candidate number, mark the question number
box and stick a barcode label on each sheet, and fasten 12
them with string INSIDE this book.
13
(5) No extra time will be given to candidates for sticking on
the barcode labels or filling in the question number boxes 14
after the ‘Time is up’ announcement.
Total
HKDSE-ECON 2-1 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

Section A (50 marks)
1. (a) What is the market structure of private dental clinics in Hong Kong? (1 mark)
(b) Describe TWO characteristics of such a market structure. (4 marks)

Answers written in the margins will not be marked.

2. The government of a country plans to sell premises in shopping centres run by the government at 60% of the
market price to local people. However, the premises must be for owners’ business use, and the owners are
not allowed to lease their premises out within 3 years or sell their premises within 5 years.
(a) What are private property rights? (2 marks)
(b) Explain whether the private property rights over the premises would be weakened under this project.
(3 marks)

3. (a) From the perspective of a borrower, what is nominal interest? (2 marks)


(b) “If the realised inflation rate is lower than the expected inflation rate, the borrower will gain and the
lender will lose.” Do you agree? Explain. (3 marks)

4. (a) Why is long run aggregate supply curve vertical? Give a reason. (3 marks)
(b) Suppose most banks lower their interest rate on savings.
(i) With the aid of the diagram below, explain the short run effect on the price level. (5 marks)
(ii) With reference to (i) and the market adjustment mechanism from the short run equilibrium to the
long run equilibrium, explain the long run effect on the price level. (6 marks)
Price level
AD = aggregate demand
LRAS0 SRAS = short run aggregate supply
SRAS0 LRAS = long run aggregate supply
Yf = full-employment output
E0 = initial equilibrium point
P0 = initial price level
P0 E0

AD0
Quantity of output
0 (real GDP)
Yf


5. The table below shows the amounts of resources required for producing 1 unit of shampoo and 1 unit of milk
powder in Country A and Country B:
Shampoo Milk powder

Country A 2 3
Country B 3 4
Suppose the terms of trade between the two countries is 1 unit of shampoo = 0.7 units of milk powder. The
transportation cost per unit of shampoo traded is 0.01 units of milk powder and it is paid by the shampoo
exporting country.
(a) Explain which country will export shampoo. (3 marks)
(b) Calculate the gain from trade (in terms of milk powder) for the two countries. (2 marks)

6. Below is the information of Hong Kong’s balance of payments in 2012:
Debit Credit
(HK$ million) (HK$ million)
Current account 22,769
Capital account 1,439
Financial account 36,152
Financial non-reserve assets 152,736
Net errors and omissions 14,822
(Source: Census and Statistics Department, HKSAR Government)
Calculate Hong Kong’s change in reserves assets in 2012. Was there a balance of payments surplus or
deficit? (3 marks)


7. The table below shows the Gini coefficients by education attainment (highest level attended) of Hong Kong
in the years 2006 and 2011.
Gini coefficient
Education Attainment (Highest level attended)
2006 2011
No schooling / pre-primary 0.418 0.312
Primary 0.379 0.335
Lower secondary 0.357 0.339
Upper secondary / sixth form 0.416 0.398
Post-secondary: Diploma / certificate / sub-degree course 0.439 0.456
Post-secondary: Degree course 0.528 0.496
Overall 0.500 0.509
(Source: Census and Statistics Department, HKSAR Government)
(a) With reference to the above table, is there any improvement in Hong Kong’s income inequality as a
whole between 2006 and 2011? (3 marks)
(b) With reference to the above table, what is the relationship between education attainment and Gini
coefficient? (1 mark)
(c) The statutory minimum wage was introduced on May 1, 2011 in Hong Kong.
(i) Which education attainment group had the greatest improvement in Gini coefficient between

2006 and 2011? (1 mark)
(ii) Explain how the effect of the introduction of the statutory minimum wage is reflected by the
change in the Gini coefficient of different education attainment group. (4 marks)


8. To cool down the over-heated economy, the government proposes levying a general sales tax on goods and
services. Evaluate this proposal. (4 marks)
END OF SECTION A

Section B (54 marks)
9. In Hong Kong, fastfood chain McDonald's handed out 1,000 Egg McMuffins for free at each of its 230
outlets in breakfast campaign between 6 am and 11 am on March 18, 2013. Many people, mainly senior
citizens, lined up at the outlets early. A total of 230,000 of free Egg McMuffins were given away in less than
2 hours. Some latecomers were disappointed.
(a) Were those freely handed-out Egg McMuffins free goods? Explain. (2 marks)
(b) Using the concept of opportunity cost, explain why those people lining up for the free Egg McMuffins
were mainly senior citizens. (3 marks)
(c) Suppose McDonald’s increased the listed price of Egg McMuffin by 10% a month later. With the aid
of a diagram, explain under what condition the total revenue of McDonald’s from Egg McMuffins
would increase due to the price rise. (5 marks)



10. A department store has set up a new branch, making it necessary to hire a large number of experienced
workers including security guards, cashiers and salespersons.
(a) What economic principle is illustrated by the above phenomenon? List THREE reasons to explain
why the above arrangement can improve the productivity of the workers. (4 marks)
(b) Below is the department store’s advertisement of recruiting security guards.
Security guard
Working hours: 10 a.m. – 8 p.m.

6 days a week
Salary: $11,000 per month
To the department store, give ONE advantage and ONE disadvantage of the above payment method
over a piece rate scheme. (4 marks)
(c) After posting the advertisement, the department store is still unable to hire enough security guards.
With the aid of a demand-supply diagram, explain why increasing the salary offered to security guards
can relieve the problem of shortage. (9 marks)


11. Tin Sau Bazaar came into operation on February 8, 2013 at Tin Sau Road, Tin Sui Wai. It is operated and
managed by the Tung Wah Group of Hospitals (TWGHs). There are more than 200 stalls selling daily
necessities. The stalls are leased at lower rents with the following objectives:
(1) To create employment opportunities in the district
(2) To encourage the self-reliance of the underprivileged
Among the successful applicants for stall allocation, over 70% were referred by social workers including
those with low income, on Comprehensive Social Security Allowance, unemployed, with employment
difficulties such as new arrivals/ethnic minorities and the like.
(a) Do you think that Tin Sau Bazaar can achieve the above two objectives? Explain. (4 marks)
(b) Discuss the effects of Tin Sau Bazaar on Hong Kong’s
(i) income inequality, and
(ii) unemployment rate.

(6 marks)
(c) Are the owners of the stalls labour or entrepreneurs? Explain. (3 marks)



12. Below is some information about an economy:
Money supply $2,500 million

Monetary base $1,000 million
Bank reserves $500 million
Required reserve ratio 25%
(a) Suppose all banks are fully loaned up. Based on the above information, calculate the currency in
public circulation in the economy, and the bank deposits and loans in the banking system. Show your
workings. (6 marks)
(b) The government decides to lower the required reserve ratio by 5%.
(i) Suppose the currency in public circulation remains unchanged and all banks are fully loaned up.
Calculate the new bank deposits and loans. Show your workings. (2 marks)
(ii) With the aid of a diagram, explain how the downward adjustment of the required reserve ratio
will affect the price and output levels of the economy in the short run. (6 marks)

END OF SECTION B

Section C (16 marks) Answer any ONE question.
Elective 1
13. A tutorial school, which is a price searcher, offers an intensive course in DSE Economics. Suppose the cost
of serving an extra student is constant. With the aid of the diagram below, explain why economic
inefficiency will be resulted if the tutorial school practises simple monopoly pricing. (7 marks)
Price
D
Quantity
0
(b) During promotional period, for those students who enrol on the course in a group of three, one of the

students can attend the course free-of-charge. Explain if this practice constitutes price discrimination.
(3 marks)
(c) Name the anti-competitive behaviour that each of the following cases may constitute. How would such
behaviour restrain competition?
(i) A rice importer agrees not to supply imported Thailand rice to any retailers other than
supermarket X.
(ii) Two bus companies agree not to charge a fare that is lower than 150% of their respective
production costs.
(4 marks)
(d) Explain ONE justification to introduce a competition policy. (2 marks)


Elective 2
14. (a) The table below shows the amount of Good X and Good Y that Country A and Country B can produce
with 1 unit of resources. Both countries are endowed 15 units of resources. The terms of trade is 1X =
0.7Y.
Good X (units) Good Y (units)

Country A 3 OR 2
Country B 3 OR 3
(i) Construct the production possibilities frontiers of Country A and Country B in the figure below.
(2 marks)
Good Y
45
40
35
30

25
20
15
10
Good X
0 5 10 15 20 25 30 35 40 45
(ii) Determine the pattern of trade between Country A and Country B. Show your steps. (4 marks)
(iii) Suppose Country A can now produce 1 extra unit of Good X or Good Y per unit of resources
because of technological improvement. Will the trade pattern change? Explain.. (4 marks)
(b) The table below shows some information Japan, Hong Kong and Singapore in 2012.
Gross National Income

Gross National Income
per capita rank minus
per capita rank
HDI rank
Japan 21 11
Hong Kong 7 -6
Singapore 3 -15
(Source: Human Development Report 2013, United Nations)
(i) Which place has the highest Human Development Index in 2012? Which place has the lowest
Human Development Index in 2012? Show your workings. (4 marks)
(ii) The places above lack natural resources, but they all have high national income levels. Suggest
TWO possible reasons why they have high national income levels. (2 marks)

END OF PAPER

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ECONOMICS INQUIRY FOR HKDSE

Marker No. Examiner No.

Time allowed: 2 hours 15 minutes

(1) After the announcement of the start of the examination, you 4

(2) This paper consists of three sections, A, B and C. Answer 7

(3) Write your answers in the space provided in this 9

(4) Supplementary answer sheets will be supplied on request. 11

HKDSE-ECON 2-1 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

(b) Describe TWO characteristics of such a market structure. (4 marks)

Answers written in the margins will not be marked.

(a) What are private property rights? (2 marks)

Answers written in the margins will not be marked.

HKDSE-ECON 2-2 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

3. (a) From the perspective of a borrower, what is nominal interest? (2 marks)

Answers written in the margins will not be marked.

Answers written in the margins will not be marked.

HKDSE-ECON 2-3 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

(b) Suppose most banks lower their interest rate on savings.

Answers written in the margins will not be marked.

Answers written in the margins will not be marked.

HKDSE-ECON 2-4 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

Answers written in the margins will not be marked.

Answers written in the margins will not be marked.

HKDSE-ECON 2-5 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

Shampoo Milk powder

(a) Explain which country will export shampoo. (3 marks)

Answers written in the margins will not be marked.

Answers written in the margins will not be marked.

HKDSE-ECON 2-6 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

6. Below is the information of Hong Kong’s balance of payments in 2012:

Answers written in the margins will not be marked.

Answers written in the margins will not be marked.

HKDSE-ECON 2-7 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

Answers written in the margins will not be marked.

Answers written in the margins will not be marked.

HKDSE-ECON 2-8 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

Answers written in the margins will not be marked.

Answers written in the margins will not be marked.

HKDSE-ECON 2-9 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

Answers written in the margins will not be marked.

Answers written in the margins will not be marked.

HKDSE-ECON 2-10 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

Answers written in the margins will not be marked.

Answers written in the margins will not be marked.

HKDSE-ECON 2-11 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

(b) Below is the department store’s advertisement of recruiting security guards.

Working hours: 10 a.m. – 8 p.m.

Answers written in the margins will not be marked.

Answers written in the margins will not be marked.

HKDSE-ECON 2-12 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

Answers written in the margins will not be marked.

Answers written in the margins will not be marked.

HKDSE-ECON 2-13 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

(1) To create employment opportunities in the district

(2) To encourage the self-reliance of the underprivileged

(b) Discuss the effects of Tin Sau Bazaar on Hong Kong’s

(i) income inequality, and

(ii) unemployment rate.

Answers written in the margins will not be marked.

Answers written in the margins will not be marked.

HKDSE-ECON 2-14 (Mock Test 8) © 2013 Aristo Educational Press Ltd.

Answers written in the margins will not be marked.