HKDSE Economics in Life – Microeconomics 1 (2nd Edition)

Chapter 2 The Three Basic Economic Problems and Private Property Rights
Revision Exercise & DRQ Level-up

Chapter 2 The Three Basic Economic Problems and Private

Property Rights

Revision Exercise

Multiple Choice Questions

Choose the best answer.

1. Which of the following are about the ‘what to produce’ problem?

(1) the colour of handbags that a factory produces
(2) the quantity of handbags that a factory produces
(3) the number of workers that a factory employs to produce handbags
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

2. Which of the following is related to the ‘how to produce’ problem?

A. A factory decides to adopt a new production system to save energy.
B. A manufacturer decides to develop a new series of mobile computing
devices.
C. A magazine publisher decides to provide a digital version of its magazine on
the Internet.
D. The government decides to adjust the ratio of public rental housing flats to
Home Ownership Scheme (HOS) flats.

3. Which of the following are related to the ‘for whom to produce’ problem?
(1) A clinic serves patients on a first-come-first-serve basis.
(2) A public hospital employs more nurses to provide better services.
(3) A canteen in a private hospital provides special meals for certain patients.
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

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HKDSE Economics in Life – Microeconomics 1 (2nd Edition)
Chapter 2 The Three Basic Economic Problems and Private Property Rights
Revision Exercise & DRQ Level-up

4.
As announced by the Chief Executive in the 2017 Policy Address, the
‘Starter Homes’ Pilot Scheme would soon be introduced. The aim was to
offer, in addition to private housing units, a specified number of affordable
flats for sale to the ‘first-time buyers’ who have never owned any property
in Hong Kong and meet other prescribed eligibility criteria.

The above case is related to the question(s) _____ in economics.

A. ‘what to produce’
B. ‘what to produce’ and ‘how to produce’
C. ‘what to produce’ and ‘for whom to produce’
D. ‘how to produce’ and ‘for whom to produce’

5. The government proposed to purchase places from private residential care homes
to ease the shortage of subsidised residential care places for the elderly. The
service hours of new elderly day care centres would also be extended to enhance
the elderly community care services.

The above proposal is related to the ______ question(s) in economics.

A. ‘what to produce’
B. ‘what to produce’ and ‘how to produce’
C. ‘what to produce’ and ‘for whom to produce’
D. ‘how to produce’ and ‘for whom to produce’

6. After the US government announced that it would impose a tariff on steel,

Harley-Davidson, a producer of motorcycles, decided to move some of its
production chains away from the US. The spokesman explained that the
company expected the cost of steel in the US to increase sharply after the tariff
was imposed. The move could reduce costs.

This is an example of using _____ to solve the problem of _____ .

A. government command … ‘how to produce’
B. government command … ‘for whom to produce’
C. the market mechanism … ‘how to produce’
D. the market mechanism … ‘for whom to produce’

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HKDSE Economics in Life – Microeconomics 1 (2nd Edition)
Chapter 2 The Three Basic Economic Problems and Private Property Rights
Revision Exercise & DRQ Level-up

7. Which of the following statements about a planned economy is CORRECT?

A. Scarcity does not exist.
B. There is no problem of unemployment.
C. Everyone receives the same amount of resources.
D. The government makes most of the production decisions.

8. Which of the following is a characteristic of a planned economy?

A. There are no private property rights in the economy.
B. Income distribution is relatively even in the economy.
C. The problem of scarcity does not exist in the economy.
D. Most resources of the economy are owned by the state.

9. In a market economy, _____ .

A. there is only price competition
B. all resources are privately owned
C. all goods are economic goods
D. most resources are allocated by the price mechanism

10. Which of the following about a planned economy and a market economy must be
CORRECT?
A. Compared to a planned economy, a market economy has a higher inflation
rate.
B. Compared to a planned economy, more resources are privately owned in a
market economy.
C. The income gap between the rich and the poor in a market economy is larger
than that in a planned economy.
D. The unemployment rate in a market economy is higher than that in a planned
economy.

11. In Country X, the allocation of most resources and goods is guided by price
signals. At the same time, the government controls the prices of some crucial
resources at certain levels. We can conclude that Country X is a
A. traditional economy.
B. planned economy.
C. market economy.
D. mixed economy.

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HKDSE Economics in Life – Microeconomics 1 (2nd Edition)
Chapter 2 The Three Basic Economic Problems and Private Property Rights
Revision Exercise & DRQ Level-up

12. In Hong Kong, the distribution of which of the following resources or goods are
mainly guided by price signals?
(1) second-hand Home Ownership Scheme flats
(2) petrol and diesel
(3) tap water
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

13. The following table shows the characteristics of two countries:

Country A Country B
Ownership most resources are owned all resources are owned
of resources by private individuals by the country
Distribution guided by government
guided by market prices
of goods command

Which of the following statements about the two countries is CORRECT?

A. Country A relies more on price competition to allocate resources than
Country B.
B. The general price level of Country A is higher than that of Country B.
C. People living in Country A are richer than those living in country B.
D. Scarcity exists in Country A but not in Country B.

14. Sandy is a die-hard fan of a Korean singer. She has bought all the singer’s music
albums. Which of the following rights does Sandy have over the music albums?
(1) to play the music albums at home
(2) to sell the music albums at a higher price to another fan
(3) to exchange the music albums for another singer’s music albums with her
friend
(4) to copy the audio tracks of the music albums and upload them to a social
networking site
A. (1) and (4) only
B. (2) and (3) only
C. (1), (2) and (3) only
D. (2), (3) and (4) only

© Aristo Educational Press Ltd. 4

HKDSE Economics in Life – Microeconomics 1 (2nd Edition)
Chapter 2 The Three Basic Economic Problems and Private Property Rights
Revision Exercise & DRQ Level-up

15. In a café, a computer is provided for customers to use. Customers who pay $50
can use the computer to get online for an hour. Joan pays $100 for using this
Internet service. She most likely possesses
A. the exclusive right to sell the computer to others.
B. the exclusive right to use the computer for 2 hours.
C. the exclusive right to bring the computer home.
D. the exclusive right to lease out the computer and earn an income.

16. In a market economy, the market mechanism cannot function properly if

(1) there is non-price competition.
(2) private property rights are not well defined.
(3) the regulations protecting private property rights cannot be enforced.
A. (1) only
B. (1) and (2) only
C. (1) and (3) only
D. (2) and (3) only

17. A well-defined and well-protected private property rights system is important to

a market economy because
A. the wealthy people have to be protected properly.
B. most of the resources in a market economy are owned by private individuals.
C. the price mechanism is the only way to allocate resources in a market
economy.
D. exchanges cannot occur if private property rights over goods are not
well-defined.

© Aristo Educational Press Ltd. 5

HKDSE Economics in Life – Microeconomics 1 (2nd Edition)
Chapter 2 The Three Basic Economic Problems and Private Property Rights
Revision Exercise & DRQ Level-up

Short Questions

1. Miss Ho plans to sell clothes or skincare products on the Internet. She finally
decides to sell clothes only and her target customers are young ladies.
(a) Identify the basic economic problem(s) that Miss Ho faces when making the
above decisions. (2 marks)
(b) As the sale of clothes is not satisfactory, Miss Ho offers discounts to
customers. Does Miss Ho’s online shop operate in a traditional economy, a
command economy or a market economy? Explain. (2 marks)

2. Suppose economy A transforms from a planned economy to a market economy.

(a) State TWO differences between a planned economy and a market economy.
(4 marks)
(b) Some people suggest that after the transformation to a market economy, the
distribution of income in economy A will become more uneven. Do you
agree? Give ONE reason to support your answer. (3 marks)

3. Refer to the following conversation.

Antonio: According to the rules set by my ancestors, I am the one who inherits
all my father’s fortune …
Martin: You can sell the ancestral house and earn lots of money!
Antonio: No ... according to the rules set by my ancestors, I cannot sell the
ancestral house. I can either live in it or rent it out at the market price.

(a) Suppose the market rent for Antonio’s ancestral house increases. Will this
affect Antonio’s opportunity cost of living in the ancestral house? Explain.
(3 marks)
(b) What are private property rights? Does Antonio have a full set of private
property rights over the ancestral house? Explain. (4 marks)

4. To help young people purchase their first homes, a government sells subsidised
residential flats to eligible people at prices lower than the market price. However,
the flats under this scheme have to be self-occupied.

How are the private property rights over the flats under the scheme weakened?
Explain. (2 marks)

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HKDSE Economics in Life – Microeconomics 1 (2nd Edition)
Chapter 2 The Three Basic Economic Problems and Private Property Rights
Revision Exercise & DRQ Level-up

Long Questions

The owner of a school’s tuck shop is considering expanding his business. With his
limited capital in hand, he can choose either to provide a school bus service for the
school or start a tuck shop in another school.

However, as he is new to the school bus service market, he needs to learn how to run a
school bus service. For example, he needs to decide on the routes to run, the number
of buses to buy, the number of drivers to employ, the salary of drivers, the bus fare
and so on.

(a) What is the tuck shop owner’s opportunity cost of choosing to provide a school
bus service? (2 marks)
(b) If the tuck shop owner chose to provide a school bus service and later found that
the number of students using the service dropped drastically, would the
opportunity cost of choosing to provide a school bus service change? Explain.
(3 marks)
(c) What type(s) of basic economic questions does the tuck shop owner need to
tackle when providing the school bus service? Use ONE example of each to
explain. (6 marks)
(d) Do you think the tuck shop owner has a full set of private property rights over
the tuck shop premises of the school he rents? Explain. (2 marks)

© Aristo Educational Press Ltd. 7

HKDSE Economics in Life – Microeconomics 1 (2nd Edition)
Chapter 2 The Three Basic Economic Problems and Private Property Rights
Revision Exercise & DRQ Level-up

DRQ Level-up

Read the information and answer the questions that follow.

Every year, the Food and Environmental Hygiene Department (FEHD) organises the
Lunar New Year Fairs at various places in Hong Kong, for example Victoria Park, Fa
Hui Park and Yuen Wo Playground. The stalls at the fairs are usually put up for
auction a few months earlier.

Source A: A news report about the auction for the 2018 Victoria Park Lunar New
Year Fair stalls

(Source: various newspapers)

Source B: Conversation between two successful bidders

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HKDSE Economics in Life – Microeconomics 1 (2nd Edition)
Chapter 2 The Three Basic Economic Problems and Private Property Rights
Revision Exercise & DRQ Level-up

Questions

(a) (i) With reference to Source A, explain which basic economic problem(s) is/are
being tackled. (2 marks)
(ii) How is/are the problem(s) tackled? (4 marks)
(b) With reference to Source B, explain if Amy has a full set of private property
rights over her stall. (2 marks)
(c) (i) With reference to Sources A and B, what is the opportunity cost for Amy to
run a stall at the Lunar New Year Fair? (2 marks)
(ii) Suppose it rained most of the time during the Lunar New Year Fair and not
many people visited the Fair. Would this affect Amy’s opportunity cost of
running a stall at the Fair? Explain. (3 marks)
(iii) Suppose Amy could sublet the stall to other people. Would this affect her
opportunity cost of running a stall at the Fair? Explain. (3 marks)

© Aristo Educational Press Ltd. 9