ECONOMICS INQUIRY FOR HKDSE

HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION

ECONOMICS PAPER 1
(Mock Test 3)

Time allowed: 1 hour

INSTRUCTIONS

Read carefully the instructions on the Answer Sheet. Stick a barcode label and insert the information required in
the spaces provided.

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.

All questions carry equal marks.

ANSWER ALL QUESTIONS. You are advised to use an HB pencil to mark all the answers on the Answer
Sheet so that wrong answers can be completely erased with a clean rubber.

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

No marks will be deducted for wrong answers.

Not to be taken away before the

end of the examination session

HKDSE-ECON 1-1 (Mock Test 3) © 2010 Aristo Educational Press Ltd.

There are 40 questions in this paper. Choose the BEST answer for each question.

1. Which of the following statements about scarcity is CORRECT?

A. Scarcity exists if the supply of a resource is limited.
B. Only people in the developing countries have to face the problem of scarcity.
C. The existence of scarcity implies that people have to make choices.
D. Scarcity implies shortage.

2. The digital version of the Riverside Scene at Qingming Festival will be shown at the Asia-World Expo. The ticket
price is $10. Joe queued up for the ticket for 2 hours, which made him miss his tennis lesson. Which of the
following statements in CORRECT?
A. Joe’s opportunity cost of obtaining the ticket is $10.
B. Joe’s opportunity cost of obtaining the ticket is higher than $10.
C. Joe’s opportunity cost of obtaining the ticket will be zero if his mother pays for the ticket.
D. Joe’s opportunity cost of obtaining the ticket is the 2 hours spent on queuing for the ticket.

3. In Hong Kong, some organisations provide food for street sleepers and emergency food supplies for the poor. The
food provided is said to be economic goods because
A. only the street sleepers and people referred by the community centers can get the food.
B. there are transportation costs for the needy to travel to the organisations.
C. more food is preferred.
D. more than one person prefer the food.

4. Miss Chan is a personal assistant. Her boss provides a smartphone for her so that jobs can be done more
conveniently. What is/are the private property rights Miss Chan may have over the smartphone?
(1) exclusive rights to use the smartphone
(2) exclusive rights to lease out the smartphone
(3) exclusive rights to sell the smartphone

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

5. Mr. Cheung and Mr. Tang jointly own a firm and they enjoy limited liability. Which of the following must be
TRUE?
A. The firm is listed on the stock exchange.
B. Mr. Cheung can transfer his shares to others without the consent of Mr. Tang.
C. They do not have to disclose the financial statements to the public.
D. Mr. Tang can continue the business even if Mr. Cheung dies.

6. The card games provided in cafes are classified as

A. consumer goods and private goods.
B. consumer goods and public goods.
C. producer goods and private goods.
D. producer goods and public goods.

HKDSE-ECON 1-2 (Mock Test 3) © 2010 Aristo Educational Press Ltd.

7. A publishing company prefers to pay a translator at piece rate rather than at time rate. This may be because
(1) it is easier to control the production cost.
(2) the cost of ensuring the translator not to shirk is lower.
(3) the cost of monitoring output quality is lower.

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

8. The following table shows the information of factory X.

Number of machines Number of workers Average product (units)

1 5 20
1 6 25
1 7 30
1 8 X

If diminishing marginal returns set in after the 7th worker is employed, the total product of 8 units of worker can
be
A. 265 units.
B. 275 units.
C. 290 units.
D. 300 units.

9. Read the following information of a competitive firm.

Output (units) Total cost ($)

1 16
2 34
3 54
4 76

Suppose the market price is $20. The profit-maximising output level is ________ units and the marginal revenue
is ________.
A. 2 … $20
B. 2 … $18
C. 3 … $20
D. 3 … $18

10. Mrs. Ma runs a farm growing organic vegetables. Recently, she has acquired a shop selling organic products. This
is an example of ____________ and this enables Mrs. Ma to ____________.
A. backward expansion … ensure a stable supply of organic vegetables for her shop
B. backward expansion … diversify the sources of income
C. forward expansion … build up a network for selling her organic products
D. forward expansion … increase the market share of her shop selling organic products

HKDSE-ECON 1-3 (Mock Test 3) © 2010 Aristo Educational Press Ltd.

11. The table below shows the market supply schedule of good X.

Unit price ($) Quantity supplied (units)

10 500
20 600
30 700
40 800
50 900

Suppose the equilibrium price of good X is $20. Which of the following statements is CORRECT?
A. At $10, the quantity demanded of good X is smaller than 500 units.
B. At $30, the total revenue is $21,000.
C. At $40, the quantity transacted is smaller than 800 units.
D. At $50, the quantity demanded is 900 units.

12. The following diagram shows the herbal tea market in Hong Kong. E0 is the original equilibrium point.

Unit price

S1

E4 S0

S2

E1 E0 E3

E2
D2

D0

D1
0 Quantity of herbal tea

Some Chinese medicine experts warn that herbal tea may not be suitable for everyone and some people may
suffer from the side effects.
Suppose some people reduce drinking herbal tea and there is an increase in the price of most herbs. The new
equilibrium point would be at _______.
A. E1
B. E2
C. E3
D. E4

13. The economic development of Country X has been growing rapidly in recent years. The growth of the construction
sector attracts many fresh graduates to join the sector. Moreover, more and more new hotels are under construction.
Which of the following must be TRUE?
A. The number of construction workers employed increases.
B. The wage rate of construction workers increases.
C. The total income of construction workers increases.
D. The total expenditure on employing construction workers increases.

HKDSE-ECON 1-4 (Mock Test 3) © 2010 Aristo Educational Press Ltd.

14. In Country Y, the market of ball pens is dominated by two producers, producer A and producer B. Producer A goes
bankrupt and closes down at the beginning of the year. After the closing of producer A, the price of ball pens of
producer B increases from $6 to $8 while the quantity transacted increases by 50%. We can conclude that
A. the price elasticity of demand of ball pens of producer B is greater than 1.
B. the price elasticity of demand of ball pens of producer B is smaller than 1.
C. the price elasticity of supply of ball pens of producer B is greater than 1.
D. the price elasticity of supply of ball pens of producer B is smaller than 1.

15. The table below shows the market demand and supply of good X.

Unit price ($) Market quantity Market quantity

supplied (units) demanded (units)
6 100 190
7 110 170
8 120 150
9 130 130
10 140 110
11 150 90

Suppose a per-unit tax of $3 is imposed on good X. The total tax revenue received by the government is _______.
The demand for good X is _______ elastic than the supply of good X.
A. $330 … more
B. $330 … less
C. $390 … more
D. $390 … less

16. Imposing an effective price floor on a good will result in

(1) a shortage of the good.
(2) a decrease in total expenditure on the good if the demand for the good is elastic.
(3) a decrease in the quantity transacted of the good.

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

17. In Hong Kong, the market structure of pay TV is said to be an oligopoly because
A. the television programs broadcasted by different pay TV providers are similar.
B. the pay TV providers know the marketing strategies of each other well.
C. the pay TV providers share the market equally.
D. when one pay TV provider offers a promotion discount, others will most likely follow.

18. Suppose the government of Country X imposed a quota on the supply of a good. Which of the following is
CORRECT?
A. Producer surplus increases because the unit price of the good increases.
B. Consumer surplus decreases and the entire loss in consumer surplus is transferred to the producers.
C. Total social surplus decreases because there is a deadweight loss.
D. Total expenditure must decrease.

HKDSE-ECON 1-5 (Mock Test 3) © 2010 Aristo Educational Press Ltd.

19. The building of a new landfill creates a bad smell and seriously affects the lives of residents living in the private
housing estate near the landfill. As a result, the market value of the flats drops drastically. Assume the residents
have the right to live in an environment with fresh air. Which of the following statements is CORRECT?
A. There is no divergence between private and social costs because the bad smell is not created within
the area of the private housing estate.
B. There is no divergence between private and social costs if the cost involved in eliminating the external
cost are higher than the benefits gained.
C. The divergence between private and social costs can only be solved by closing the landfill.
D. The divergence between private and social costs can be eliminated by paying compensation to the
residents.

20. The diagrams below show the Lorenz curves of two countries.

Lorenz curve of Country A Lorenz curve of Country B

Cumulative Cumulative
percentage of percentage of
income income

Cumulative percentage Cumulative percentage

of households of households

According to the above diagrams, which of the following statements is/are CORRECT?
(1) The low-income group in Country B earns a lower income than that in Country A.
(2) The high-income group in County B has a higher percentage of total income than that in Country A.
(3) The Gini coefficient of Country A is greater than zero and smaller than that of Country B.

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

HKDSE-ECON 1-6 (Mock Test 3) © 2010 Aristo Educational Press Ltd.

21. The table below shows the gross domestic product data of Country X in a certain year.

Items $ million
Private consumption expenditure X
Gross domestic fixed capital formation 100
Changes in inventories -20
Depreciation 5
Government consumption expenditure 80
Domestic exports of goods 80
Re-export of goods 50
Imports of goods 140
Exports of services 150
Imports of services 90
Indirect taxes 3
Subsidies 6

If the GDP at factor cost is $333 million, the value of X is ________.

A. 115
B. 120
C. 126
D. 130

22. The diagram below shows the production chain of electronic readers in an economy.
Parts from Local
$150,000 $350,000 Local
overseas $250,000 electronic
consumers
suppliers reader ($5,000
Local Local
$400,000 retailers sales tax
electronic electronic
reader inclusive)
Parts from reader
manufacturer wholesaler Electronic
local
$100,000 $280,000 reader
suppliers
exporters

What is the contribution of the above production chain to the economy’s GDP at market prices?
A. $475,000
B. $480,000
C. $485,000
D. $630,000

23. The growth rates of nominal GDP, real GDP and population of Country X in a certain year are 7%, -2% and 5%
respectively. Which of the following about Country X is TRUE?
(1) The general price level has increased.
(2) The per capita real GDP has increased.
(3) The per capita nominal GDP has increased.

A. (1) and (2) only

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

HKDSE-ECON 1-7 (Mock Test 3) © 2010 Aristo Educational Press Ltd.

24. Which of the following should be included in the calculation of Hong Kong’s GNP but not GDP?
A. income earned by a Hong Kong resident from working at a company owned by a Japanese in Hong
Kong for 6 months
B. income earned by an American from working at a company in Hong Kong for six months
C. income earned by a Hong Kong resident from selling a diamond ring to a Mainland tourist
D. income earned by a Hong Kong resident from working at a company in New York for six months

25. In an open economy, Y = $300, C = $140, I = $100, G = $80 and SP = $100 where Y, C, I, G and SP are national
income, private consumption expenditure, gross investment, government consumption expenditure and private
saving respectively. This means that the government has a __________________ and there is a
__________________.
A. budget deficit … net capital inflow
B. budget deficit … net capital outflow
C. budget surplus … net capital inflow
D. budget surplus … net capital outflow

26. Compared to the per capita nominal GDP, the per capita real GDP is a better indicator in reflecting the average
living standard of an economy because
A. the change in the size of population is taken into account.
B. the distribution of income is taken into account.
C. the composition of output is taken into account.
D. the change in the price level is taken into account.

27. Suppose the government of an economy raises the profits tax rate. This will result in
A. a decrease in aggregate demand.
B. a decrease in short-run aggregate supply.
C. a decrease in long-run aggregate supply.
D. a decrease in short-run and long-run aggregate supply.

28. An economy’s long-run aggregate supply will decrease if

A. the government passes the minimum wage law.
B. a drought destroys most of the crops.
C. many people choose to migrate overseas.
D. the sales tax rate increases.

HKDSE-ECON 1-8 (Mock Test 3) © 2010 Aristo Educational Press Ltd.

29.
Price level

LRAS

SRAS

AD
0
Y*
Quantity of output
(real GDP)

Suppose the output level of an economy is currently at Y*. Which of the following helps restore the economy to
the long-run equilibrium without raising the price level?
A. lowering the profits tax rate
B. lowering the sales tax rate
C. increasing the government expenditure
D. increasing the unemployment benefits

30. Suppose an economy is initially operating at the long-run equilibrium. When there is an appreciation of the
domestic currency, the price level will ____________ and the equilibrium output level will ____________ in the
long run.
A. increase … increase
B. remain unchanged … increase
C. decrease … decrease
D. decrease … remain unchanged

31. Suppose an economy is initially operating at the long-run equilibrium. When ___________________________,
the equilibrium level of output will increase while the change in the price level will be uncertain in the long run.
A. people prefer to save less
B. the sales tax is lowered
C. the government spends more on elderly services
D. the government decides to build a new highway

32. Suppose an economy is initially operating at the long-run equilibrium. If a new energy which is more efficient and
environmentally friendly is introduced into the economy,
A. the aggregate demand curve will shift to the right.
B. the long-run aggregate supply curve will shift to the right.
C. both the short-run and long-run aggregate supply curves will shift to the right.
D. the aggregate demand, short-run aggregate supply and long-run aggregate supply curves will shift to
the right.

HKDSE-ECON 1-9 (Mock Test 3) © 2010 Aristo Educational Press Ltd.

33. Which of the following is/are likely to happen when a barter economy changes to an economy that uses money?
(1) The transactions of goods and services drop to zero.
(2) It is easier to determine the exchange ratio.
(3) Transactions of small amounts can be made more easily.
A. (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

34. Compared to 9999 gold, banknotes are a better form of money for transactions of large amounts because banknotes
are more
A. homogeneous.
B. limited in supply.
C. portable.
D. durable.

35. Which of the following functions is NOT performed by the Hong Kong Monetary Authority?
A. to manage Hong Kong’s foreign exchange reserves
B. to supervise and monitor the monetary sector
C. to issue all coins and banknotes
D. to carry out monetary policies

36. Which of the following time deposits can be accepted by both licensed banks and deposit-taking companies but not
by restricted licence banks?
A. $100,000 for two months
B. $300,000 for one month
C. $500,000 for four months
D. $200,000 for six months

37. Herman withdraws $10,000 from his savings deposit with a licensed bank in Hong Kong. He puts $4,000 as time
deposit with a restricted licence bank and deposits the remaining $6,000 as demand deposits with a licensed bank.
Which of the following is the immediate effect of the above actions on the money supply of Hong Kong?
A. Both money supply M1 and money supply M3 remain unchanged.
B. Money supply M1 increases while money supply M2 remains unchanged.
C. Money supply M1 increases while money supply M2 decreases.
D. Money supply M2 increases while money supply M3 remains unchanged.

HKDSE-ECON 1-10 (Mock Test 3) © 2010 Aristo Educational Press Ltd.

38. The table below shows the balance sheet of a banking system.

Assets ($) Liabilities ($)

Reserves 3,000 Deposits 10,000
Loans 7,000

Suppose the public holds $1,000 cash and the amount of excess reserves is $500. Which of the following about
the banking system is/are CORRECT?
(1) The maximum banking multiplier is 3.33.
(2) The money supply is $11,000.
(3) The money multiplier is 2.75.

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

39. The table below shows the balance sheet of a banking system.

Assets ($) Liabilities ($)

Reserves 5,000 Deposits 20,000
Loans 15,000

Suppose the required reserve ratio is 20%. Someone withdraws $2,000 from the banking system. The maximum
possible amount of bank deposits will be
A. $15,000.
B. $17,000.
C. $18,000.
D. $20,000.

40. Which of the following will lead to an increase in the nominal interest rate?
A. The required reserve ratio is lowered.
B. The central bank issues more money.
C. People prefer to use electronic money more.
D. People’s nominal income increases.

END OF PAPER

HKDSE-ECON 1-11 (Mock Test 3) © 2010 Aristo Educational Press Ltd.