ECON 1999 4 RRMA FOR TEACHERS’ USE ONLY yas, Please note that the answers suggested in the marking scheme are not necessarily the only possible answers to the questions. All well-reasoned alternative answers are acceptable. Section A 1 Cost 4 +: value of the noodle + / value of the highest-valued alternative | 3 2. = afallindemand 1 = a fall in supply 1 + As the fall in demand was equal to the fallin supply, the price remained the same. 1 Unit price Quantity 3. (Company A is using) time rate and (Company B is using) piece rate. Ie Time rate : to avoid the disadvantage of using piece rate under which workers may forego quality for quantity / to maintain a steady supply of workers within a time period / no need to ‘measure the output for determining the wage payment / any other relevant point {Mark the FIRST POINT only.] Piece rate : to improve the incentive to produce more or to increase productivity of workers / to save the monitoring cost of workers / less rigid to adjust the total production cost : extra workers ean be employed or dismissed according to the business volume / any other relevant point 2 [Mark the FIRST POINT only.} 4. Advantage : no interest burden / no redemption obligation 2 {Mark the FIRST POINT only.] Disadvantage : easier to be taken over 2 [Mark the FIRST POINT only.) 5. MI = currency in the hands of the non-bank public + demand deposits 2 M2 = MI + savings deposits + time deposits held with banks + negotiable Certificates of Deposit. issued by banks held outside the monetary sector 2 6 (a) $10.00 + $10 000 x (1 ~25%) 2 = $17 500 2 (©) Not included. «> this $10 000 is not the value of a service, 2 7. (a) Not included. ~ charity donation is not a production 2 (b) Included, 2 + itis in exchange for certain service rendered in the current year. 99.CE ECON 1-9° ARAMA FOR TEACHERS’ USE ONLY yuu; 8. Taxtoincome ratio average tax rates are; 51000 5 T oseq; $2700 $1000 520000 ‘330000 oR 2 marginal tax rates are: 819007 $1000__ gp, _$2700-$1900_. go, '$20000-$10000 '530000-$20000 ‘The conclusion is : Not a progressive tax. .+ the marginal tax rate decreases/the average tax rate decreasesithe tax amount increases less proportionately than the taxable income. oR 3 +s the marginal tax rate does not increase / the average tax rate does not increase / the tax amount does not increase more proportionately than the taxable income. max: 2 Effective communication for Section A Total 40 99-CE ECON 1-10ARAME FOR TEACHERS’ USE ONLY suas Section B 9. (a) France has a higher cost of cars production relative to that of Japan « France's opportunity cost of producing one unit of cars is 2 ( 4/2) units of red wine 1 Japan's opportunity cost of producing one unit of cars is 1/2 (= 1/2) units of red ‘wine. / France's import price of one unit of eas is 1.5 (~ 3/2) units of red wine 1 France should import cars ftom Japan. 1 France's gain 2 units of red wine ~ 1.5 units of red wine = 0.5 units of red wine 3 O Unit price * 3 ° = > Q#Q Quantity of French cars “The devaluation => price (in HKS) of Japanese cars 4 1 Japanese cars and French cars are substitutes 1 demand for French ears 4 1 both the equilibrium price and quantity of French cars | Wl = sales revenue of French cars 4 (From OP,E,Q, to OPiE,Q;) 1 (©) (i) Value-added approach {230 + 60 ~ 100] + ${(350 ~ 230) + (160 ~ 60)] 2 = S410 1 (ii) Expenditure approach $1350} + ${160} ~ ${100] 2 = 3410 1 (4) - many buyers 2 anumber of sellers / few dominating firms + interdependency = free entry and exit . ~ differentiated products 1@, max.:2 + imperfect information = non-price competition = any other relevant point [Mark the FIRST TWO points only.] max:2 Effective communication 99-CE ECON I-11ARAMSH FOR TEACHERS’ USE ONLY gasis 10. (@) (= profits after tax will rise = incentive to invest will increase / investment T = (derived) demand for labour is likely to increase (@ other things being equal, unemployment would tend to fall) ai) ‘Wage rate [esrees lures eevee Quantity of labour = (law of demand : ) a downward sloping demand curve = aw of supply : ) an upward sloping svpply curve = unemployment : the fixed wage rate > equilibrium wage rate = (derived) demand for labour T : demand curve shifts upward = since wage rate remains unchanged, excess supply or unemployment + from U, to U, ) = Tower tax rate = easier to set up/close down = less legal constraints in business operation ~. save cost in this aspect = any other reasonable point [Mark the FIRST TWO points only. Disadvantages = unlimited liability = narrower scope of raising capital = lack of continuity = less possible to enjoy economies of scale + any other reasonable point [Mark the FIRST TWO points only.] (©) (@_ (No) * The source principle or the income eared is not derived from H.K. (ii) Airport departure tax. ‘The equity principle / certainty principle / convenient principie / economy principle, (d)__ HK$ appreciates against these Asian currenc = these Asian countries’ exports become relatively cheaper than HK exports in the US market ‘=> there are (cheaper) substitutes = demand for HK exports 4 = demand for labour in HIK’s export sector 4 => HIK’s unemployment is very likely to increase Effective communication 99-CE ECON 1-12 1@, max 1@, max:2 max :2 Total :25ARAMEH FOR TEACHERS’ USE ONLY 1 @ i Unit price P, = prevailing taxi fare s Pg equilibrium taxi fare Py the taxi fare after a rise P, E Py B ’, i ANIC D ° eee Qa Qe Quantity of taxi service Graph showing : + Py total revenue increases from P, x Qy to P, x Qu / additional revenue = P, P; BC +AC QQ OQ Verbal explanation = = excess demand at P, = still an excess demand or still below equilibrium price after P, -> P, = quantity transacted increases = total revenue T from P, x Q,, to P; x Qa / additional revenue is P; x Qa ~ ‘Analtemative answer Unit price s PeL_E Py =} ?, B T\a ic D ° Quantity of taxi service © Graph showing = P< Pe 2 PePi P = mo change in quantity transacted = total revenue t from P, x Q, to P, x Q,/ additional revenue is P, x Q~P, x Q, 99-CE ECON 1-13, Marks“FURSYEFB «= FOR TEACHERS’ USE ONLY jai 11, (6) Conglomerate integration, 1 Elaboration of two of the following ~ diversification of products/spread risk = financial economy of scale ~ managerial economy of scale 2@, max: 4 ~ marketing economy of scale any other relevant point (except technical economy of scale) [Mark the F1nST TWO points only.) (© @_ Under fixed interest rates, the payment of hire and purchase remains the same. / Under floating interest rates, the fall in nominal interest rate is less than the fall in the general price level. 2 However, the value of payment to bank for hire and purchase will increase since the purchasing power of the payment increase. 2 interest rates, if the adjustment of interest rates is fast enough the fall in the general price level, there will be no loss nor “i 2 (= unit oraccount 1 = standard of deferred payment 1 It isnot a unit of account because the price of other goods are not expressed in terms of Octopus cards 1 Itis not a standard of deferred payment because payment is immediately debited 10 the Octopus card 1 Effective communication max:2 2 Total 25 99-CE ECON 1-14