2022-Nov Mock Ans Eng

Suggested answers to Mock Paper (2022 November)
Paper 1
Answers (45 marks)
1. C 6. A 11. D 16. A 21. A 26. C 31. A 36. B 41. D
2. B 7. B 12. B 17. C 22. D 27. B 32. A 37. A 42. D
3. B 8. A 13. B 18. D 23. D 28. B 33. C 38. B 43. C
4. B 9. A 14. D 19. C 24. C 29. D 34. D 39. D 44. D
5. A 10. D 15. C 20. B 25. B 30. C 35. D 40. A 45. B
Paper 2
Section A
1. a. Opportunity cost remains unchanged, because (1 mark)
this only reduces the value of buying shares. The value of the highest-valued option
forgone (depositing in a bank) is not affected. (1 mark)
b. Opportunity cost increases, because (1 mark)
it increases the value of the highest-valued option forgone (depositing in a bank).
(1 mark)
2. a. Yes, because (1 mark)

 the listening / consumption of music by someone does not reduce the quantity
available to others.
 the listening / consumption of music is non-rival and non-excludable.
 the marginal cost of serving additional customers is zero.
(Any ONE of the above or other reasonable answer. 1 mark)
b. i. The exclusive rights to use, receive income from and transfer a good. (2 marks)
ii. Yes, because (1 mark)
the landlords’ exclusive right to receive income is weakened. (1 mark)
3. a. i. Advantage:
 When the group suffers a loss, it does not have to pay dividends to
shareholders, it has to pay to debenture holders.
 When the group liquidates, there is no need for the group to repay
shareholders the amount of capital invested / there is no share redemption
obligation, but principal has to be repaid to the debenture holders.
NSS Exploring Economics 1 © United Prime Educational

Mock Paper (2022 March) (Suggested answers) Publishing (HK) Limited 2022
Disadvantage:
 If the group issues shares, the control of the existing shareholders is weakened.
This will not happen if debentures are issued.
 The possibility of being taken over is higher. This will not happen if more
debentures are issued.
ii. Reasons:
 Organisation becomes too complicated. As a result, decisions are delayed and
coordination is weakened.
 Needs to pay a higher interest rate to obtain new capital as it is too risky for a
bank to lend too much money to the same firm.
 Needs to purchase more expensive resources or use more expensive
substitutes.
 Pays a higher marketing cost to develop new markets or promote new products
as existing markets approach saturation.
(Any TWO of the above or other reasonable answer. 1 mark × 2 = 2 marks)
b. Lateral expansion. (1 mark)
Possible motives:
 Internal economies of scale
 Make use of its brand name to sell other products
 Risk reduction by product diversification
 More efficient use of resources
4. a. The law states that when more units of a variable factor are continuously added to a
given quantity of fixed factors, the marginal product of the variable factor will
eventually decrease, ceteris paribus (including technology). (3 marks)
b. Yes, because (1 mark)
when labour increases from 3 units to 4 units, the marginal product decreases from
13 units to 11 units. (2 marks)
Additional information:
Capital (units) 30 30 30 30
Labour (units) 1 2 3 4
Average output of labour (units) 8 10 11 11
Total output (units) 8 20 33 44
Marginal output (units) 8 12 13 11

5. Indicate on the diagram:
 Vertical LRAS curve (1 mark)
 AD curve shifts rightward. (1 mark)
 Price level increases and output remains constant at YF (1 mark)
Price level
LRAS
P2
P1
AD2
AD1
Output
0 YF
Verbal elaboration:
When import desire decreases, the economy’s import value will decrease and net exports
will increase. Aggregate demand will increase. (1 mark)
In the long run, the price level will increase and output level will remain unchanged.
(1 mark)
6. a. Required reserves = $30,000 million × 40% = $12,000 million

Reserves shortage = $(12,000 – 10,000) million = $2,000 million (1 mark)
b. (1 mark for each answer)
Assets ($ million) Liabilities ($ million)
Reserves 10,000 Deposits 25,000
Loans 15,000
Additional information:
After the process of deposit contraction:
Reserves = $10,000 million
Total deposits = $10,000 million ÷ 40% = $25,000 million.
Amount of bank loans = $(25,000 – 10,000) million = $15,000 million

7. a. Indeterminate, because the amount of resources available to both countries is not
known, so their productivities cannot be compared. (2 marks)
b. Country X’s cost of producing 1 unit of food = 0.25 (=100 ÷ 400) units of clothing
(1 mark)
Country Y’s cost of producing 1 unit of food = 2 (=300 ÷ 150) units of clothing
(1 mark)
As Country Y’s cost of producing food is higher, it would import food. (1 mark)
Country Y’s total gain from importing 30 units of food
= [(2 × 30) – 45] = 15 units of clothing (1 mark)
8. Indicate on the diagram:

 Demand curve shifts rightwards. (1 mark)
 Quantity transacted increases. (1 mark)
 Increase in total export value (1 mark)
Price (in Euro)
+
D2
D1
Quantity
0 Q1 Q2
Verbal elaboration:
When the US dollar appreciates against the Euro, the Hong Kong dollar (HKD) also
appreciates against the Euro under the linked exchange rate system. (1 mark)
As the price of French leather products (in HKD) decreases, Hong Kong people will buy
more French leather products. (1 mark)
Hong Kong’s demand for French leather products will increase. (1 mark)
As the price (in Euros) does not change and the quantity transacted increases, the total
export value (in Euros) will increase. (1 mark)

Section B
9. a. i. Since the bonus of the salesperson directly depends on his or her work
performance, the working incentive is higher. Tesla’s sales revenue may be higher.
(Or other reasonable answers. 2 marks)
ii. Due to the basic salary provision, the salesperson can still be sure that he/she will
receive a minimum amount salary even if Tesla’s business is poor.
(Or other reasonable answers. 2 marks)
b. Indicate on the diagram:
 Demand curve shifts rightward. (1 mark)
 Supply curve shifts rightward. (1 mark)
 Rightward shift in demand curve < Supply curve (1 mark)
 Price falls. (1 mark)
Unit price ($)
S1
S2
P1
P2
D2
D1
Quantity
0 Q2 Q1
Verbal elaboration:
When the prices of traditional automobiles increase, the demand for electric vehicles
will increase as they are substitutes. (2 marks)
Breakthroughs in production technology for electric vehicles increase their supply.
(1 mark)
If the increase in demand is smaller than the increase in supply, the price falls.
(1 mark)
c. i. Indirect tax because the tax burden can be shifted to others. (2 marks)
ii. Regressive tax because tax payment takes a smaller proportion of income when
income increases. | (3 marks)

10. a. Indicate on the diagram:
 Pe increases to Pb and Qe decreases to Qb (1 mark)
 Correct position of deadweight loss (1 mark)
Unit price ($)
S
Deadweight loss
Pb
Pe
Pa
D
0 Quantity
Q1 Qe
Verbal elaboration:
The initial price floor at Pa is ineffective since it is lower than the equilibrium price Pe.
The market price remains at Pe. (1 mark)
When the price floor is raised to Pb, the market price rises from Pe to Pb and the
quantity transacted decreases from Qe to Q1. (1 mark)
As deadweight loss appears / total social surplus decreases / marginal benefit is higher
than marginal costs, economic efficiency worsen. (1 mark)
b. No, because (1 mark)
 the cash coupon is not a generally accepted medium of exchange since the coupon
is not accepted by other merchants.
 the cash coupon is not a store of value since the purchasing power stored in the
coupon cannot be used for general future use / the coupon cannot be used after the
expiry date.
 the cash coupon is not a standard of deferred payment, since future payment is not
expressed in the number of cash coupons.
(Any ONE of the above or other reasonable answer. 2 marks)
c. Reasons:
 Some of the factor inputs used in the construction of the infrastructure are not
produced in Country A but imported.
 Some of the locally produced factor inputs used in the construction of the
infrastructure were not produced in 2022.
(Or other reasonable answer. 2 marks × 2 = 4 marks)

d. Gain, because (1 mark)
the purchasing power of the fixed interest it pays decreases during inflation.
(2 marks)
11. a. Reason:
 Heterogeneous output: The property sizes / location sold by the two developers
are different.
 Different prices: In perfect competition, the building should have only one price
per square foot, but the prices per square foot of the properties sold by the two
developers are different.
 Imperfect information: The two developers provide property information through
advertisements, implying the cost of obtaining market information is not zero.
 Non-price competition exists: The provision of advertisements is a form of non-
price competition.
(Any ONE of the above or other reasonable answer. 2 marks)
b. Indicate on the diagram:
 Demand curve shifts leftward. (1 mark)
 Price falls. (1 mark)
 Quantity decreases. (1 mark)
Unit price ($)
P1
P2
D1
D2
Quantity
0 Q2 Q1
c. i. If the average labour productivity of imported workers is higher (lower) than that
of existing construction workers in Hong Kong, average labor productivity will
increase (decrease). (3 marks)

ii. Unemployment rate = U nemployed population × 100% (1 mark)
L abour force
Importing workers does not affect the unemployed population but increases the
labour force in Hong Kong. The unemployment rate decreases. (2 marks)
d. i. Current account balance
= $(–79,650 +34,841 +78,015 – 61,142) million = –$27,936 million (1 mark)
ii. Primary income outflow (income payable abroad), because (1 mark)
these imported workers worked in Hong Kong for less than one year. Their
incomes are not income earned by Hong Kong residents. .(1 mark)
e. Marks award for effective communication (EC: max 2 marks)
Mark
Performance
s
Supports arguments with the source / data and appropriate economic
theories.
2 Presents relevant material.
Presents well-organised and coherent answers without repetition of ideas.
Uses language that expresses ideas clearly and fluently.
Presents arguments with some support of the sources / data and economic
theories.
Presents some irrelevant material.
1
Presents answers in a less organised way with some repetition.
Uses language that conveys a clear message with some inappropriate use
of words / terms / symbols.
Presents arguments with no support of the source / data and economic
theories.
0 Presents material unrelated to the gist of the question.
Presents inconsistent arguments.
Expresses limited ideas with inappropriate use of words / terms / symbols.
The maximum marks for content are 12 marks. Answers may include the following:
Objective 1: to curb the downward trend of private property prices

 Policy A: When land reclamation work is completed, more land will be available
for constructing private residential buildings. This will increase the supply of first-
hand private residential buildings in the long term and lower their prices. As first-
hand and second-hand properties are substitutes, a decrease in the prices of first-
hand properties reduces the demand for second-hand properties and lowers their

prices.

 Policy B: Reducing the stamp duty rate for property transactions will reduce the
amount of stamp duty paid by non-first-time home buyers when buying private
properties. This increases the demand for (first-hand and second-hand) properties
and increase their prices.
 Any comparison of Policy A and Policy B that is consistent with Objective 1. For
example, the government would prefer Policy B because it can curb the downward
trend in private property prices.
Objective 2: to improve the government’s fiscal balance

 Policy A: When land reclamation work is completed, the government can publicly
auction land and receive considerable land sales revenue.
 Policy B: Lowering the stamp duty rate on property transactions will reduce tax
revenue (impact 1). At the same time, it will reduce the cost of purchasing
residential buildings for non-first-time home buyers. This increases transaction
volume and stamp duty revenue (impact 2). If impact 1 is greater than impact 2,
the government’s stamp duty revenue decreases.
example, the government would prefer Policy A because it can improve the fiscal
balance of the government.
OR
 Policy A: Carrying out the land reclamation project will greatly increase
government investment expenditures and will not bring income from land sales to
the government before the reclamation is completed.
 Policy B: Lowering the stamp duty rate on property transactions will reduce tax
revenue (impact 1). At the same time, it will reduce the cost of purchasing
residential buildings for non-first-time home buyers. This increases transaction
volume and stamp duty revenue (impact 2). If impact 1 is smaller than impact 2,
the government’s stamp duty revenue increases.
example, the government would prefer Policy B as it can improve the fiscal
balance of the government.
Objective 3: to increase aggregate output (in the short run and/or in the long run)
 Policy A: Carrying out reclamation projects will greatly increase government
investment expenditure and aggregate demand. This increases aggregate output in
the short run. When the reclamation project is completed, capital accumulation
will increase long run aggregate supply. Aggregate output increases in the long
run.

 Policy B: Lowering the stamp duty rate on property transactions will reduce the
amount of stamp duty paid by non-first-time home buyers to purchase private
properties, increasing the demand for properties. This may increase aggregate
demand and aggregate output.
example, the government would prefer Policy A because it increases aggregate
output in both the short run and the long run, while the increase in aggregate
demand under Policy B is likely to be smaller.


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Suggested answers to Mock Paper (2022 November)

2. a. Yes, because (1 mark)

NSS Exploring Economics 1 © United Prime Educational

NSS Exploring Economics 3 © United Prime Educational

6. a. Required reserves = $30,000 million × 40% = $12,000 million

NSS Exploring Economics 5 © United Prime Educational

8. Indicate on the diagram:

NSS Exploring Economics 6 © United Prime Educational

NSS Exploring Economics 7 © United Prime Educational

NSS Exploring Economics 8 © United Prime Educational

NSS Exploring Economics 9 © United Prime Educational

Objective 1: to curb the downward trend of private property prices

NSS Exploring Economics 10 © United Prime Educational

NSS Exploring Economics 11 © United Prime Educational

Objective 2: to improve the government’s fiscal balance

NSS Exploring Economics 12 © United Prime Educational

NSS Exploring Economics 13 © United Prime Educational

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