2020-2021 $6 Mock Examination Economies 11 7 ted Answer Papert - 6A__[11B [16B [21B [2A [3iC [36D [41B 7B 2D [7A [2B [278 [32D [37C_ [aC 8D i3B iC [3c [28c [33a [38B [43D 9A |[14c li9C |24p [29D [34B [39D [aa 10.8 [15D [20D [25D [30B_ [35a [40D 45D iste) Paper It 2 better verties L pave 1 oe Greve wraiths - vertical supply curve ~ demand falls (1) - price falls (1) - Decrease in total market value of 7 Lees shares (around US$119 billion) (1) without fall in D > 0 mark Quantity | 2 Bxtemal cost exists when a person’s action imposes a cox on other a missing underlined words > 0 | patie, but he or she does not give any compensation for that eect. (1) ‘There is no extemal cost in this case as there are no other parties affected / | b. without explanation, no mark both the factory and the car park are owned by the same owner.(1) -b | Since the car park is also owned by Mr Chan, he includes the damage to the | mistakes: car park in the production cost of the factory. (1) | use MC and MB instead of MSC ‘Therefore, his factory produces at the efficient output level (1), where the and MSB- marginal social benefit is equal to the marginal social cost.(1) ‘not complete explanation of extemal cost. (point a) Or external cost exists asthe chemical may affect neighbors living near the car park and Mr Chan does not compensate them (1).-- a therefore, external | cost exists (1). resource allocation is inefficient (1) as marginal social cost is larger than marginal social benefit (1). there is overproduction (1) 3a, capital (I) as they are man-made resources used in production. (1) ‘2. Without elaboration-0 | Without underlined words -0 Capita as there is production b. Yes (1) , because a person can watch the videos without reducing the | cost (a consumer good may incur availability of those materials to others, (I) ie., the broadcast are | production cost as well) non-rivalrous in consumption / concurrently consumed by many individual b. Without ‘consumption’ > -1 ~To be continued ~2020-2021 $6 Mock Examination Economics 1 8 Or The answer can be “No” if there exist network capacity constraints (or congestion problems) when watching the videos, therefore, it is rival in consumption (3) No (1) as it is excludable in consumption (1), + elaboration 4.a. Verbal elaboration: Efficiency is worsened (1) as the gap between marginal benefit and marginal cost becomes larger (1) Diagram: Effective price floor increases (1), § curve shifts right / down (1), larger new surplus (1), correct increase in DWL (1) Mistakes ~ Without an increase in supply (1 mask for diagram, max. 2 marks for explanation. ~ start P1 at equilibrium (1 mark for inerease in $ in diagram, 1 mark for explanation) ~ efficiency worsen, instead of inefficiency exists; the gap between MB and MC increases, not MB > MC. ». Allocative function: Prices serve the function of allocating resources in markets. | No elaboration > 0 OR Signalling function: Prices help to transmit information about consumer demand | relative to producer supply. Rationing function ~0 5. a, When disposable Label vertical LRAS as SRAS > income increases, 4 consumption increases, AD Label y-axis as Price (-1), x-axis increases. (1) In the long asQ ran, only price level Verbal: ignore what is given in increases (1) while output is question (money given to the constant. poor). therefore, if talking about Diagram: ‘Ms increases, interest rate falls, Vertical LRAS (1) Adding market adjustment-> ifcomect > ok but | invetment increases, -> no mark Increase in AD (0.5) and __| many stdents missed steps. for AD increases; G increases > correct new price level 0 for AD increases 2) 0.5) Without C increases > 0 for AD ~ To be continued ~2020-2021 $6 Mock Examination Economies II 9 \. store of value (1) The purchasing power of money falls when the price level ‘Cannot store purchasing increases. (1) power > 0 standard of deferred payment (1) As the value of money falls, the cost of agreeing | Without elaboration > 0 on the contracts of future payments of money increases / people are not willing to | Mismatch > 0 accept future payment expressed in terms of money. (1) Medium of exchange: People may refuse to accept the money ifthe value keeps | falling. (2) | "6, required reserve ratio: (500-100)/2000 = 0.2 (1) - manne s ea | maximum deposits: $460*1/0.2 = $2300 million @ million > -1 'b. new monetary base = cash held by non-bank public + reserves of commercial banks = $100 +8460 = $560 million (1) + (1) 7. a. The production cost of producing 1 unit of book in cen eee 1S) — (GS-28) = aa country A: 60B = 120S country B: 64B = 1928 1B=2S 1B=38 Country A will export books as her production cost is lower than country B. (1) most students didn’t explain verbally ». The production cost of producing 1 unit of book in country A: (the undertined words). 120B = 1208 many students calculate the range of 1B=18 a enplee en mutually beneficial terms of trade, (As the difference between the domestic production costs of country A. le difference between the domestic production costs of country A. a but that can only be used as @ | | 8, The US dollars depreciates against THB(1). Under the linked. aa underlined words > 0 for a exchange rate system, Hong Kong dollar (HKD) depreciates | against THB (1).-a | export of goods / ravel overseas > not | | relevant to this question. question asked | ‘The price of goods and services in terms of THB falls /in terms of | about inbound tourists only | THB, the cost of visiting HK falls / it is cheaper in terms of THB for | | Thailand visitors to visit HK. (1) contradiction (wrong direction of change, | | Therefore, more visitors came here (1) and export of services ice. increase / decrease) > 0 mark | increased. (1) Therefore, current account improved (1) e.g. export of services falls and current | account increases. ‘Monopoly competition / without the the mark -ompetition | 9. (i. the market structure ixfionopolistic competition) oT Eee ii. there are differentiated products, e.g. s€{ne climes provide more | comfortable environment for the patients. (2) therefore, they can charge |‘ explain why the price is higher. | ‘higher price. / provide better services Not dinssy —> cop Miinesems > 2 ~~ To be continued ~2020-2021 $6 Mock Examination Economics Il 10 There is imperfect market information, e.g. patients do not know the prices of different clinics. (2) So, the clinics charge a higher price and patients do not know There is non-price competition, e.g. some doctors of some clinics are more ‘ ROE experienced. (2) The production cost of some clinics may be higher, For instance, their rental payment is higher, and therefore charge a higher price. (2) ‘Without terms, similar examples considered as one point only, (©). The owner(s) is/are not personally liable for the legal obligation of the firm. OR (The company can sue and be sued in a company name under the law / ‘The company itself has the right to own assets, e.g. it may hold the shares of other firms.) ii, private limited company. (1) it has wider / more source of capital and wider scope of specialization./ share business risk / practice division of labour / limited liability / longer business continuity (1@) Without legal /firm > -1 ‘The owners can sue the company (1) | Limited company ~0 Wider scope of capital - 0 (©) The employer can have a lower cost of monitoring (supervising) the performance of the doctors as they would have a higher working incentive. ‘The employer can share part of the business risk with the doctors as the company would pay less to the doctors when the business in not good. Without aaboration 31 1 ~ Any reasonable answers st @ ] Disadvantage: ‘ — 7 increase in government | Disadv. | To the organization: Less efficient management / may not | 1M | | expenditure > 0 achieve cost minimization / slower reaction to market —_| Sit pease exper > 0 change / less flexible price adjustment Advantage To users: | | Quality improved without reason lower quality of services / longer waiting time goverment can control quality. | of service > 0 To society: less efficient of resources /, deadweight loss exists i] 1 Adv ‘Lower price / less burden to users / narrow income gap IM | more information for planning ahead / less cost of acquiring capital 10. a.i per capita real value-added of non-mainland visitors: (35400/21.52)*100/104= $1581.71 (1) er capita real value-added of mainland visitors (6800/36.96)"100/104= $1477.67 (1) znon-mainland visitors’ spending led to a greater contribution to Hong Kong’s GDP. (1) ~- To be continued -- Wrong data > 0 for conclusion With Million / forget *100 (815.81 or $14.77) only 1 ‘mark for conclusion2020-2021 $6 Mock Examination Economics 11 u ii. from the information, mainland visitors mainly shopped during their visits / spend money on retail trade while non-mainland tourists spend ‘more on accommodation services and a slightly smaller amount of food and beverage services (2) (1 mark only if students just point out they have different consumption pattern) For each dollar spent on retail trade, a smaller proportion of itis counted as value-added to GDP of Hong Kong. Meanwhile, for each dollar spent on decommodation services or food and beverage services, almost half of the spending is counted as value-added to GDP of HK. (2) / Or the value-added from retail trade accounts for less than 20% of total spending (1) while the value added from accommodation services and food and beverage services accounts for almost 50% of total spending. (1) ger $ser Bec, GY > KY ferrin MA an) ‘Wrong standard point in ai (mainlanders’ contribution is larger > 0 fori) Approach I: compare value added of two groups of visitors and the ‘numbers of visitors > max 2 marks Approach 2: calculate the proportion of value added to total spending of cach category of both types of visitor > max. 3 marks Approach 3: able to identify that the value added of retail sector is low and mainland visitors mainly spent onit > 3 or 4 marks. +b. i. As many tourism business have to close their business, the demand for the workers will fall / more (low-pay) workers lost their job (1). a ‘Many of them have low education attainment whose median monthly wage is lower (1). The income inequality will increase and gini coefficient will increase. (1)~c Tow educated > mobility is low (without using the information in C = point b) > max 2 marks i. () In times of inflation, the purchasing power of money falls. (I) The real value of frozen minimum wage will fall. (1) TT. During economic downturns, the demand for] Wage low-pay workers fall (1). At the same time, if there is | W2'Pé an increase in minimum wage, the surplus of workers |“ Wi will increase (1) Employment falls. (1) Unskilled workers / elderly more likely lose their job (1). So not, everyone get benefit from it. Max. 3 marks diagram: fall in demand (1) ‘Wage increases (0.5), old surplus (0.5), new surplus (0.5), Qt falls (0.5) @ 0 The tax payment takes a decreasing proportion of taxable income when ‘taxable income increases (1). ~To be continued ~2020-2021 $6 Mock Examination Economics I 12 ail. The BSD will increase the cost of transaction / reduce number of foreign investors. (1) Therefore, the demand for residential flats falls (1), reducing the prices, alii. No’ (1) as the transaction 7 quantity transacted of |b. % fallin tax revenue due to a fall in tansactions residential flats will fall after the implementation of BSD 27 eteve int oveshe due to dona tax Q). - Ifthe decrease in stamp duties due to a fall in transaction is | % fall in tax revenue due fo fall in taxable income greater than the increase in stamp duty due to the additional | > -! AR tax, (2) the tax revenue will fall. —b Talk about other source of revenue > 0 (Question asked about stamp duty only) e.g. property tax ’. Both median houschold income and the rent of small living units increased (I). ‘However, the change in the rent of small living units is bigger / the growth rate of the rent of small living units is bigger. (1) ¢. An imposition of rent control will lead to a fall in | Price the price and quantity transacted. Shortage will exist. s. At the new quantity transacted, marginal benefit is bigger than marginal cost, (1) Deadweight loss exists. v Pl q@ shortage > @ 4. Landlond: (Max 4) ‘They would prefer proposal II. As cash allowance is Provided, more people can afford the rent of subdivided units. Demand increases and total rental income increases. G3). They will not prefer proposal I as a rent control will reduce their rental income. (2). A rent control reduces rental price. (1) Even if they can charge a higher price after renovation, if the tenants cannot afford the new ental prices, the landlord may not be able to make extra money from it. (1) Existing tenants (Max 4) They would prefer proposal Il. With the cash allowance, this will increase their disposable income. Currently the rent takes up about 40% or more oftheir income, With extra money, their living standard can be improved. @) Or i they have the cash allowance, they may be able to afford subdivided units with better conditions, Living standard cain be improved, (1) ‘They would not prefer proposal I. If there is a rent control, the quantity supplicd of subdivided unit will fall / shortage will exist. Some of them will not be able to rent the place anymore as landlords may use non-price ‘competition to sclect tenants / select those who have stable income or younger workers to rent the place. (4) Or ~- To be continued ~2020-2021 $6 Mock Examination Economics It B They would not prefer proposal I. As the retum to landlords decreases, they may not be willing to invest any ‘money on renovation or maintenance. The living condition of the units may deteriorate. (2) Accept: they prefer proposal I. The rental price will fall and this will reduce their financial burden. From source D, the rent takes up 45% of income of tenants. With lower rental expenditure, their disposable income increases and therefore, living standard will improve (4). Moreover, some landlords may renovate the living units in order to charge a price more than the price ceiling set by the government, Therefore, the living condition will improve (1). Under proposal II, single people under the age of 60 are not eligible for it or those who haven’t been waiting for public housing for 3 years, cannot apply for it. The proposal will not reduce their financial burden (1) Politicians (Max. 3 marks) In proposal II, the government has to provide cash allowance to the people who have been waiting for public housing for more than 3 years. Government expenditure will increase, Meanwhile, proposal I doesn’t involve any government spending. (2) So proposal I is preferred. OR In proposal |, the administrative and enforcement cost can be very high, Landlord may illegally charge a price higher than the maximum price and they may conceal the information to avoid tax payment. Therefore, to effectively enforce the policy, the administrative cost and enforcement cost can be even higher than that of proposal Il. (2) Proposal I is not preferred. Overall, max. 10 marks. ~-To be continued --2020-2021 S6 Mock Examination Economics II Students can discuss both proposals. However, only 4 | mark is given for standpoint. co Whe d. landlord 7 Not prefer I (1) (rent control) ] Rental income falls (1) as both price and quantity transacted falls (1) Renovation may not bring extra income as the tenants cannot afford it (1) allspipnte fer proposal Il (cash allowance) (1) Demand increases (1) both price and | Max 4 quantity transacted increases (1) marks Rental income increases (1) Existing tenants Not prefer I (1) Shortage / quantity supplied falls (1) ‘Non-price competition exists / example (1) May not be able to rent the place (1) Or Return to landlord falls, less willing to spend ‘money on renovation (1). Living condition | deteriorates (1) Prefer proposal I (1) Increase disposable income (1) | Max. 4 Living standard improved (1) marks Or Afford subdivided units with better conditions (1), living standard improved (1) | Prefer (1) Rental price falls (1), disposable income increases (1), living standard improved (1) Landlords renovate the living units and living | condition improved (1) Politicians | Not prefer 11(1) i Max4 Not all tenants living in subdivided units | marks can get the allowance. Proposal I will not reduce their financial burden (1) ‘Not prefer I As landlord may illegally charge a price higher than the maximum price, administrative cost /enforcement cost can be high /involved @ Not prefer I Government expenditure increase as | Max 3 marks cash allowance is given regularly. | Q) Wrong to talk | about tax revenue in this [case EC content EC marks <3 marks ° 46 0,1 7-10 0,1,2 ~- To be continued --