2022-2023

MOCK EXAM
S6 ECON
PAPER 1

Name:
SACRED HEART CANOSSIAN COLLEGE
2022-2023 MOCK EXAMINATION Class: No.:

SECONDARY 6 Block:

ECONOMICS
Paper 1
Marks: ___________________

Time allowed: 1 hour

GENERAL INSTRUCTIONS

(1) Read carefully the instructions on the Answer Sheet. After

the announcement of the start of the examination, you should
first insert the information required in the spaces provided.
No extra time will be given to insert the information after
the ‘Time is up’ announcement.

(2) 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.

(3) All questions carry equal marks.

(4) ANSWER ALL QUESTIONS. You are advised to use an

HB pencil to mark all the answers on the Answer Sheet, so
that wrong marks can be completely erased with a clean
rubber. You must mark the answers clearly; otherwise you
will lose marks if the answers cannot be captured.

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

(6) No marks will be deducted for wrong answers.

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There are 45 questions in this paper. Choose the BEST answer for each question.

1. May has won a sum of money from a lottery. She can choose to spend the money on a trip to Japan or deposit it with a bank.
Which of the following will decrease her opportunity cost of having a trip to Japan?

A. The trip is less enjoyable than expected.

B. May’s best friend will go to the trip with her.
C. The Japanese currency depreciates against Hong Kong dollar.
D. The savings interest rate increases.

2. Which of the following statements about economic goods is correct?

A. The supply of economic goods is fixed.

B. People prefer economic goods to free goods.
C. People compete for both economic goods and free goods.
D. The quantity demanded is greater than the quantity supplied when the price is zero.

3. Which of the following is a normative statement?

A. An increase in the minimum wage will lead to an increase in the unemployment rate.
B. If the government increases the amount of unemployment compensation, the number of unemployed people will
increase.
C. Since the number of emigrants is on the rise, the government should lower the tax rates in order to attract more
new immigrants coming to Hong Kong.
D. Building more infrastructures will definitely lead to the fiscal deficit of the government.

4. An economy changes from a planned economy to a market economy. Which of the following is / are most likely to occur in
the economy?

(1) Private property rights are better protected.

(2) Income distribution becomes more uneven.
(3) Production becomes less efficient.

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

5. Mary owns an organic garden. She plants vegetables in the garden and opens the garden for tourists to visit. Which type(s)
of production does she engage in?

(1) primary production

(2) secondary production
(3) tertiary production

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

6. Which of the following is NOT an advantage of division of labour?

A. raise labour supply

B. stimulate mechanisation
C. save production time
D. improve workers’ living standard

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7. After changing the wage payment method, the production of a toy manufacturer changes as follows:

Daily output per Products not meeting the

worker (Units) quality requirement (Units)
Original wage
100 15
payment method
New wage
80 5
payment method

According to the table above, the original wage payment method may be __________ while the new wage payment method
may be _____________.

A. time rate … piece rate

B. piece rate … time rate
C. profit sharing scheme … time rate
D. profit sharing scheme … piece rate

8. The following table shows the production data of a firm:

Number of workers Number of working hours
1 3
1 4
1 5
1 6
Machinery (Units) Average product (Units)
3 10
3 15
3 16
3 15

Which of the following statements is correct?

A. Labour is a fixed factor.

B. The firm should produce 80 units of output as the average cost is the lowest.
C. The law of diminishing marginal returns applies to the firm.
D. The firm enjoys economies of scale.

9. Which of the following statements about a perfectly competitive market is INCORRECT?

A. There is no non-price competition.

B. There will be only one price for a type of good.
C. The product information is known by all people.
D. The prices of goods are fixed.

10. Which of the following statements about a monopoly is correct?

A. A monopolist does not need to face any competition.

B. The formation of a monopoly is only caused by the franchise granted by the government.
C. A monopolist will also promote his / her products or services through advertisement.
D. Since there are no other sellers, a monopolist must earn a higher profit.

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11. The following table shows the production costs of a price-taking firm:

Output (Units) 1 2 3 4 5
Average variable cost ($) 2 3 4 5 6
Fixed cost ($) 2 2 2 2 2

Suppose the market price is $6.

A. The firm’s maximum producer surplus is $4.

B. The firm can earn a maximum profit of $4.
C. The profit maximising output is 5 units.
D. None of the above

12. Which of the following factors are constant when we draw the supply curve of a good?

(1) the price of the good

(2) the wages of workers
(3) the production cost
(4) the production technology

A. (1) and (2) only

B. (3) and (4) only
C. (1), (3) and (4) only
D. (2), (3) and (4) only

13. The technology of lasik eye surgery has improved greatly. Under which of the following situations will the total revenue of
lasik eye surgery services increase?

A. The demand for the services inelastic.

B. The demand for the services is elastic.
C. The supply of the services is inelastic.
D. The supply of the services is elastic.

14. Suppose Good X and Good Y are in competitive supply. If the price of Good Y falls and consumers expect the price of Good
X to rise, which of the following demand-supply diagrams can illustrate the case?
A. B.

C. D.

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15. The following is the demand-supply diagram of Good X:

If the government sets a price ceiling at P1, which of the following statements is/are correct?

(1) Producers’ total revenue is area 0PEQ.

(2) There is an excess supply in the market.
(3) The quantity transacted will fall.

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

16. The following is the market demand-supply schedule of a good:

Price ($) 8 9 10 11 12 13
Quantity demanded (Units) 60 55 50 45 40 35
Quantity supplied (Units) 30 40 50 60 70 80

If the government imposes a unit tax of $3 on the good, what is producers’ total revenue excluding tax payment?

A. $360
B. $400
C. $455
D. $480

17. The following is the demand-supply diagram of Good X:

Suppose the government provides a unit subsidy of $Y for Good X. Which of the following is the total revenue including
subsidy of producers of Good X?

A. P1 ´ Q2
B. P2 ´ Q1
C. P2 ´ Q2
D. P3 ´ Q2

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18. Refer to the following supply-demand schedule of Good Y.

Unit price ($) 25 23 21 19 17 15 13

Quantity demanded (Units) 100 150 200 250 300 350 400
Quantity supplied (Units) 400 350 300 250 200 150 100

If the government decreases the quota of Good Y from 300 units to 200 units, the market price will _______________.

A. increase by $2
B. increase by $4
C. decrease by $2
D. decrease by $4

19. If the market equilibrium output level is lower than the efficient output level, this implies that

A. if output level increases, social surplus will decrease.

B. if output level is increased to efficient level, deadweight loss will decrease.
C. under the equilibrium output level, marginal social benefit is smaller than marginal social cost.
D. the government should intervene to maximise total social surplus.

20. If a country imposes a complete ban on smoking,

A. there will be no deadweight loss in the market.

B. the marginal social cost equals the marginal social benefit.
C. there is no divergence between social cost and social benefit.
D. None of the above

21. Which of the following should be added to the net fixed capital formation in order to calculate gross investment expenditure
this year?

(1) The value of unsold furniture produced this year.

(2) The expenditure on replacing the capital which has worn out owing to production.
(3) The capital gain that a resident has received from buying shares this year.
(4) A property developer’s expenditure on building shopping malls this year.

A. (1) and (2) only

B. (1) and (3) only
C. (2) and (4) only
D. (3) and (4) only

22. Which of the following should be added to the net factor income from abroad?

A. The income that an Korean singer has earned by holding concerts in Hong Kong
B. The amount of money that a Hong Kong resident has spent to buy a commercial building in the US
C. The income that a Hong Kong resident has earned by working as an analyst for the branch of an US bank in
Hong Kong
D. The interest income that a Hong Kong resident has earned from the savings account of a bank in the US.

23. The following table shows the statistical data of Country A:

Year Nominal GDP Real GDP

($ billion) ($ billion)
2020 80 75
2021 90 70

Country A’s inflation rate in 2021 was ___________.

A. 6.7%
B. 20.5%
C. 21.9%
D. 28.6%
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24. Suppose the nominal GNI and the price level increase by 15% and 12% respectively, but the population increase by 10%.
Then the per capita nominal GNI will ______ and the per capita real GNI will ______.

A. increase … decrease
B. increase … increase
C. decrease … decrease
D. decrease … increase

25. The per capita real GDP of a country would overstate the general living standard because it does not ___________.

A. take inflation into account.

B. consider the size of population.
C. include all non-marketed goods.
D. reflect the longer average working hours.

26. It is found that the unemployment rate in Economy A is increasing, the price level is no longer rising but falling instead, and
the investment expenditure is decreasing. In which phase of the business cycle does the economy belong to?

A. recession
B. recovery
C. prosperity
D. depression

27. Which of the following is NOT a function of Hong Kong Monetary Authority?

A. stabilise the linked exchange rate of Hong Kong

B. manage the government’s financial reserves
C. act as the lender of last resort for banks
D. set the interest rate for banks

28. Suppose the nominal interest rate is 5% and the expected inflation rate is 6%. The opportunity cost of holding cash
is , the real rate of return on holding cash balance is , and the expected real return rate from holding
interest generating debentures is .

A. -5% ... 11% … -1%

B. 6% ... 6% … 5%
C. 5% ... -6% … 1%
D. 5% ... -6% … -1%

29. The following table shows the information about an economy’s money supply:
Item $ Billion
Total issuance of legal tender 7
Legal tender held by authorised institutions 4
Demand deposits of licensed banks 10
Savings and time deposits of licensed banks 50
Negotiable Certificates of Deposit issued by licensed
30
banks held by non-authorised institutions
Deposits of restricted licensed banks and Negotiable
Certificates of Deposit issued by restricted licensed banks 20
held by non-authorised institutions

M2 of the economy is $________ billion.

A. 83
B. 93
C. 97
D. 117

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30. A decrease in may offset the effect of a contractionary monetary policy on national income.

(1) people’s desire to hold money as an asset

(2) people’s desire to save
(3) transfer payments

A. (1) and (2) only

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

31. Which of the following will lead to an increase in aggregate demand?

A. a rise in private saving

B. a fall in the labour cost
C. a fall in imports
D. a fall in the progressivity of income tax

32. Suppose that an economy is in the long run equilibrium. If the government of the economy reduces the construction of
infrastructure, its long run equilibrium price level will __________ and its long run equilibrium output level will__________.

A. drop ... remain unchanged

B. rise ... remain unchanged
C. be uncertain ... drop
D. drop ... rise

33. In 2022, the war in Ukraine has destroyed the infrastructure and reduced the population there. Suppose the economy was in
the long run equilibrium initially. Which of the following diagrams can BEST show the short run and long run effects of the
incident mentioned above on the country?

A. B.

C. D.

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34. The following table shows Sally’s source of income earned in Hong Kong.

Source of income Income ($)

The capital gain earned by selling her flat 200 000
Rental income from leasing a flat 100 000
The interest earned from a savings deposit 5 000
Dividend received from shares 8 000

According to the present tax system of Hong Kong, Sally needs to pay ____________.

(1) stamp duty

(2) property tax
(3) interest tax
(4) profits tax

A. (2) only
B. (1) and (2) only
C. (3) and (4) only
D. (1), (2), (3) and (4)

35. According to the _________________ principle of taxation, Hong Kong residents who earn profits from the investment
overseas ___________ liable to tax payment in Hong Kong.

A. source … are
B. source … are not
C. certainty … are
D. certainty … are not

36. Study the following diagram:

According to the above diagram, the ratio of public expenditure to GDP

A. is increasing.
B. is decreasing.
C. remains unchanged.
D. is uncertain.

37. If the government increases its expenditure and tax revenue by $100 million at the same time, the short run equilibrium
output level will ________ while the price level will ________.

A. increase … decrease
B. increase … increase
C. decrease … fall
D. remain unchanged … remain unchanged

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38. Which of the following diagrams illustrate regressive taxes?

(1) (2)

(3) (4)

A. (1) and (3) only

B. (1) and (4) only
C. (2) and (3) only
D. (2) and (4) only

39. A country increases its money supply at a rate lower than the percentage increase in the general price level. According to the
quantity theory of money, which of the following statements are correct?

(1) The real output level increases.

(2) Employment is worsened.
(3) There is inflation.
(4) The nominal GDP decreases.

A. (1) and (2) only

B. (2) and (3) only
C. (3) and (4) only
D. (1), (3) and (4) only

40. Suppose Country A is a small open economy and it imposes an effective import quota on Country B’s goods. Which of the
following statements is / are correct?

(1) The import quota will raise the quality of goods exported from Country B.
(2) The import quota will increase Country A’s demand for locally-produced goods.
(3) The import quota will reduce the quantity of goods imported by Country A from Country B.

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

41. Under the linked exchange rate system in Hong Kong,

A. the exchange rates of the Hong Kong dollar against currencies other than US dollar are floating.
B. the market exchange rate of the Hong Kong dollar against the US dollar is fixed.
C. the US dollar will appreciate against the Australian dollar if the Hong Kong dollar appreciates against the
Australian dollar.
D. The public can sell their Hong Kong dollars to the three note-issuing banks in exchange for US dollars at the
linked exchange rate.

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42. The following table shows the quantities of Good X or Good Y that Country A and Country B can produce with 1 unit of
resources:

Good X (Units) Good Y (Units)

Country A 10 OR 20
Country B 40 OR 40

Which of the following statements are correct?

(1) Country A has a comparative advantage in producing Good X.

(2) If the two countries trade, Country B will import Good Y.
(3) If the terms of trade are 1 unit of Good X for 1.5 units of Good Y, both countries can gain from trade.
(4) If the terms of trade are 5 units of Good Y for 4 units of Good X, exporting country of Good Y will have no gain if the
transportation cost borne by the exporting country per unit of Good Y is 0.3 unit of Good X.

A. (1) and (3) only

B. (1) and (4) only
C. (2) and (3) only
D. (2), (3) and (4) only

43. The following diagram shows the market of a good in a small open economy.

P1 +

When the economy imposes an import tariff, which of the following statements is INCORRECT?

A. The import volume is Q3 – Q2.

B. Local consumption is Q3.
C. The world price increases from P1 to P1 + t.
D. The revenue of tariff is area c.

44. Which of the following will be recorded as a debit entry in Hong Kong’s invisible trade account?

A. A Hong Kong company imports automobiles from Japan.

B. A Hong Kong resident donates money to Cambodia.
C. A Hong Kong resident visits Qatar to watch World Cup 2022.
D. A Korean tourist stays in a Hong Kong hotel.

45. When an economy faces a current account deficit, this implies that the economy’s

A. capital and financial account is in a surplus.

B. sum of invisible and visible trade balance will be smaller than zero.
C. the values of total exports is smaller than the value of imports.
D. reserve assets decrease.

END OF PAPER
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Suggested answer
1 C 21 A 41 A

2 D 22 D 42 D

3 C 23 B 43 C

4 A 24 A 44 C

5 D 25 D 45 A

6 A 26 A

7 B 27 D

8 C 28 D

9 D 29 B

10 C 30 A

11 B 31 D

12 D 32 C

13 B 33 C

14 D 34 A

15 A 35 B

16 A 36 B

17 A 37 B

18 A 38 C

19 B 39 B

20 D 40 D

Distribution
Basic concepts 4
Firm and production 5
Competition and market structure 2
Market and Price 5
Efficiency, equity and the role of government 4
Measurement of economic performance 6
Money and banking 4
National income determination and price level 4
Macroeconomic policies 5
International trade and finance 6

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Answers written in the margins will not be marked.

Answers written in the margins will not be marked.