Chapter 2 The three basic economic problems Scetion A (15 marks) Choose the BEST answer for each question. Which of the following is NOT related to the "what to produce” problem in economics? A. the kinds of cakes a bakery should provide B. a bakery also supplying hot coffee CC. abakery setting a minimum charge D. a bakery limiting the production of a certain type of cake A beauty salon launches a membership system so as to attract more customers. Which basic cconomie problem is this related to? A. what to produce B. how to produce C. for whom to produce D. None of the above. Mr, Chan is the owner of a bakery. He is now considering cither to buy more machines or to employ more staff to expand output. Which basic economic problem(s) is/are illustrated in this case? (1) “what to produce” (2) “how to produce” (3) “for whom to produce” A. (l)only B. (2)only C. (1) and (2) only D. (2) and (3) onlyWhich of the following are the features of a market economy? (1) The allocation of resources is less even. (2) There is only price competition (3) _ Firms make production decisions according to the market price. (4) Most resources are privately owned, A. (I)and (2) only B. (3) and (4) only C. (1), 2) and (4) only D. (2), B)and (4) only Country X was 2 command economy. When it ums to a market economy. it is expected that A. the market prices of goods and services will decrease B. people will have a full set of private property rights over their properties CC. more goods cl services will rely on price mechanism to tackle the three basie economic problems D. the problem of scarcity will be solved In a command economy, resource allocation is guided by A. Slate B. Price C. Customs and traditions D. Market In a society where there are no private property rights, (1) _ people will use non-price competition to allocate resources. (2) exchange will not take place. (3) _ there are no economic goods A. (1)and Q) only B. (1) and (3) only C. (and (3) only D. (1), (2) and (3) Which of the following is a precondition for exchange? A. Discrimination B, Opportunity cost C, Competition D, Private property rights9. Which of the A. B. following still exists in one-man economy Discrimination Opportunity cost ©. Competition D. Private property tights 10. In a society of more than one person, scarcity implies A. Discrimination B. Opportunity cost C. Competition D. Private property rights Topic: Chl IL. Suppose John earns$50 per hour and the price of a concert ticket is $200, Ihe can only choose to work or go to the concert, what is his opportunity cost of choosing to spend 3 hours to enjoy the concert? A. $50 B. $200 Cc. $300 D. $350 12. Mary owns a residential flat. She is thinking of either living in the lat herself or rent it out. Under which of the following situatio: will her cost of living in the flat decrease? A. The flat can now be sold at a higher price. ‘The performance of the property management company is better than expected, C._ The interest rate on mortgage loan incre D. ‘The market rent of the flat falls Se. 13, Which of the following in an example of free goods? A. Seawater in flushing public toilets, B. Sea water in the ocean, CC. Sea water in the fish tank in the market. D._Sca water in flushing home toilets.14. Below is the circular flow diagram of an economy Flow A » Money flow Le | [tows | Flow C | —» Real flow Flow D 4, Joanne has the following ways to spend two hours: 1. Watching a basketball match which costs her $14 2. Earning $50 per hour as a waitress; 3, Eaming $60 per hour for working at a supermarket. What wil] be Joanne’s opportunity cost of watching the basketball match?A. $120 B. $140 Cc. $240 D. $260 «Below are Jason's options of spending the money and his order of Jason has $200,000 savin prelerence. First preference: Paying the down payment on & home nrortgage, ‘ond preference: Buying a eat joney ta bis friend and receiving interest in return, Third preference: Lending the m Which of the following will lower Jason's opportunity cost of using the money to pay the down payment on a home morigage? The performance of the ear is not as good as expected. A B. Jason's friend is not able to pay interest to him. C. The price of the property that he has bought decreases, D. The house is not as comfortable as expected. Amy isa student, She can do the following things at the weekend: | First choice: shopping Second choice: watching a movie | Third choice: doing revision at home very boring, Amy’s cost of doing revision at home will If the movie A. increase B. decrease C. remain unchanged D. increase, decrease or remain unchanged Rubbish in the sea is NOT a good in economics because A. no one is willing to pay for it B. its production does not involve any cost. C, no one wants more of it. D. it cannot satisfy people’s wants.10. u 12. ‘The free newspapers distributed at the MTR stations are A. free goods because MTR passengers do not pay for them. B. free goods because every MTR passenger has the right to get them. C._ economic goods because there are always MTR passengers who want to get the free newspapers but cannot get one. D, economic goads because they can attract more people to take the MTR Whi A. Crystal watehes her favourite TV programme. h of the following is an example of production? B, Alex washes his father’s tra pocket money. C. Cathy D. Monica reads a novel ar in order to get e% surls on the Snternet for entertainment. Below is the circular flow model of a country. ¥ ¥ ——+ Money flow [ Household Fin ¥ Flow X tT * Real Now included in Flow X? A factor income such as rent and wages Which of the following B.” expenditure on goods and services for private consumption C._ final goods and services produced by firms D. factors of production such as labour Statement I: When bird flu breaks out, the government should ban the sale of chicken. Statement 2: When bird flu breaks out, the demand for chicken decreases. Statement 1 isa and statement 2 is a A. positive statement ... normative statement B., normative statement... positive statement C. positive statement ... positive statement D, normative statement ,,, normative statement On a remote island, there is only one man, Which of the following is CORREC A. The man does not have to face the problem of scarcity. B. The man does not have to make choices, C. There is no opportunity cost in getting any goods. D. There is no competition for goods and services.13. When there is a decrease in the interest rate, (1) the cost of present consumption decreases. (2) people will save more (3) firms will be more willing to invest A. (I) and (2) only B. (1) and (3) only C. 2)and G3) only D. (1.2) and G) 14. The cost of using a piece of land is zero if A. the land is free of charge B._ the land isa gift of nature. C. the land is abandoned. D. the land has no other uses. David can either spend his summer holiday taking two courses or visiting Bangkok for a study tour. Which of the following will raise his cost of taking two courses? A. The fee for study tour suddenly increases B. The two courses are very boring, C. His family go on a trip to Japan which has a higher value than the study tour. D. The air ticket price between Hong Kong and Bangkok suddenly decreases. 16. David is choosing between two ways of spending his summer vacation: to take a summer job or to join an exchange programme to the United Kingdom, Which of the following will decrease his opportunity cost of taking the summer job? The fee for the exchange programme increases. ‘The summer job pays @ nigher salary. A valuable course is added to the exchange programme, Less training for the summer job is provided. pop 17. A good is an economic good if more than one person needs i. more of itis preferred, it can satisfy human wants, poe itis limited in supply.jould spend time queuing up for the charity 18. Why do the elderly rather than the young people w rice? A. Itis a tradition to queue up for the rice B. The elderly prefer rice other kinds of food. C. The elderly are poorer than the young people. D. The elderly value their best choice of other activities less than that of young people. 19. Which of the following are not the opportunity costs of attending school? (1) school fees (2) income forgone (3) poor examination results, (4) expenditure on tunel A. (1) and (2) only B. (I)and @) only ©. (2) and (4) only D. (3) and (4) only 20. Which of the following is classified as consumption? A. Astudent saves up unused Christmas cards until next Christmas. B.A student helps to clean his classroom C. Mrs, Hong teaches a TV audience how to cook. D. A student watches a music TV programme. Section B (34 marks) Attempt ALL questions 1 The following shows Joe's preferences for lunch at the following restaurants: Istchoice: Fat Kee 2nd choice: Ming Kee 3rd choice: _Ng Kee Suppose the prices of a set lunch at the three restaurants are the same, (@)_ What is Joe’s cost of having lunch at Ming Kee? (2 marks) (b)_ Explain how his cost of choosing Ng Kee will change if Joe finds that Fat Kee has closed for ns. (4 marks)Karen has recently spent $5 million to buy au apartment in Tai Po, She lives in the apartment and every month, [she rents her apartment to a tenant, she ean earn a What is Karen’s 10 management fe paysa 10,000 per month and the tenant will pay the management fe remtall income of cost of living in the apartment? Explain, (4 marks) Mary is a nurse and is also good at doing housework, but she employs a domestic helper to do her housework, In terms of opportunity cost, explain why Mary employs a domestic helper instead of being a full-time housewife, (5 marks) 4, John can earn $200 per hour by giving tutorial cla and spends 1,5 hours to have his haircut of having a haircut today? (3 marks) s. Suppose he does not give tutorial class today istead, which costs $120. What is John's opportunity cost 6. Fresh air may not be a five good. (a) List ONE situation when fresh air is a free good. Explain. (2 marks) (b) List ONE situation when fresh air is nota free good. Explain. (2 marks)