You are on page 1of 29







     ! "  
$% &'
When demand is more elastic than supply


—  | ) £ á ! (




V  *+ ,  

‡ At the outbreak of SARS, airlines did not reduce
air fares or the number of flights. As a result,
there were a lot of empty seats on planes flying
to Hong Kong.
‡ With the aid of a diagram, explain the above
economic phenomenon, and explain how the
total revenue of these airlines was affected.
(8 marks)

 - S

ES Decrease in TR

½ ½ ½

‡ Suppose the price of paper falls drastically and

the number of school children increases.
. Explain why the supply of and the demand for
textbooks would be affected by these changes.
. With the aid of a diagram, explain under what
condition of the price of text books would
DECREASE. (8 marks)
 |   - .
0 ·
-  K   








/ / /
-   *+

‡ Deflation has occurred in Hong Kong since 8.

A government official has said, ³Deflation in
Hong Kong would stimulate its exports.´ With the
aid of a diagram, explain under what condition
would deflation increase Hong Kong¶s total
export value (in terms of the Hong Kong dollar).
(7 marks)
-  0
‡ K   
‡ K 



‡ "   % $   %  

 & ' 
‡ &(   
!  #    

  + ' 
-  0


   & 2 3 !
  $4 &'
     # #
V !    $4 &'
-  0
A. If there is a bad harvest of rice in China due to flooding,
what would the market of Chinese rice in Hong Kong be
affected? Explain with the aid of a diagram. (5 marks)

B. If more and more Hong Kong citizens are in favour of the

rice from Thailand, what would happen to the market of
Thai rice in Hong Kong? (5 marks)

C. If we find that the combined effect in (a) and (b) caused

the price of Chinese rice in Hong Kong to remain
unchanged, explain with the aid of a diagram. (7 marks)
-  0

‡ 7A
‡ Workers in the manufacturing sector in Hong
Kong have an unemployment problem. With the
aid of a supply-demand diagram, explain ONE
situation under which the number of unemployed
manufacturing workers may decrease. (6 marks)
-  0
‡ 8Bc
‡ Mr Wong employs some imported workers in the
. With the aid of a diagram, explain the effect of
importation of workers on the equilibrium wage rate
of restaurant workers in Hong Kong. (4 marks)
. Use the same diagram to illustrate the effect of
importation of workers on the employment level of
    '   , ' 
-  0

‡ B a
‡ There is a serious unemployment in Hong
. Given a fixed wage rate, explain why a
decrease in the profits tax rate may reduce
unemployment. (3 marks)
. Draw a supply-demand diagram for the labour
market in (i) above. Explain, step by step, how
the diagram is drawn. (6 marks)
-  0

 5 6  0)
 7    !
$; &'
) +# 

‡ 7Bb
‡ Suppose the government builds a railway in
northwest New Territories. With the aid of a
diagram, explain the effect of this new railway on
the total revenue of mini-buses operating on the
same route. (6 marks)
V  - < +# 

‡ B (b)
‡ There are student places not yet filled in Miss Wong¶s
tutorial school. The school decides to launch an
advertising campaign to recruit more students and to
keep the tuition fee unchanged.
‡ With the aid of diagram, explain how a successful
advertising campaign would fill all the places and
increase the total revenue of the school. (7 marks)
-  0  +# 

‡ Suppose the postage charge of a country is fixed.

When e-commerce and e-mail becomes popular,
the revenue of the country¶s ost Office from
postage charge falls sharply.
. Indicate in a diagram the decrease in the postage
charge revenue of the ost Office.
. In order to compensate for the decrease in
revenue, the ost Office increases its postage
charge. Indicate in the diagram in ( ) the change
in revenue of the ost Office due to the increase
in postage charge. (5 marks)
)  +# 

‡ 8B b
‡ Suppose Japanese Yen depreciates against the
Hong Kong dollar, and that Hong Kong people¶s
demand for Japanese car is elastic.
‡ With the aid of a diagram, explain how these
factors would affect the sales revenue (in HK$)
of Japanese car in Hong Kong. (8 marks)

‡ The Japanese Yen depreciated sharply against the

Hong Kong dollar. Other things being equal, what
would be the effect on the sales revenue of French
cars in Hong Kong? Explain your answer with the
aid of a supply-demand diagram. ( marks)
 ) +# 

‡ Bb
‡ Some petroleum companies complained that
their business was affected because some
drivers bought gasoline from smugglers who
evaded import duties.
‡ With the aid of a diagram, explain how the
smuggling of gasoline would affect the sales
revenue of petroleum companies. (7 marks)
-  0  +# 

‡ With the aid of a diagram, explain the condition

under which a large emigration of Country A¶s
workers to Country B would lead to a decrease
in the total income of all workers (including those
immigrants) in Country B. (8 marks)
)  +# 

‡ B 
‡ Mr Wong runs a bookstore in Hong Kong. He sells books
imported from Britain. Suppose the exchange rate
between the US dollar and the British pound changes as
follows: April : US$ = ǧ .75 ; May : US$ = ǧ.7
‡ Suppose the price of books imported from Britain
remains unchanged in British pound and the demand for
these books is inelastic. With the aid of a diagram,
explain how Mr Wong¶s sales revenue of these books in
HK dollars would change. (7 marks)
)  * +# 

‡  Bb
‡ Suppose the importing economy reduces the
effective quota on the quantity of garments
imported. With the aid of a diagram, explain
under what condition the total expenditure of this
economy on imported garments would decrease.
( marks)

‡ 3¶(c)
‡ If the U.S.A. imposes a very high tariff on
garments imported from China, explain whether
. the garment producers in South Korea, and
. the banks in Hong Kong
‡ will gain or lose. (5 marks)
)0 *

‡ Suppose a per unit tax is imposed on the TV

sets sold in Hong Kong. This tax is collected
from the sellers. Indicate on a supply-demand
diagram the respective tax burdens of the
consumers and the sellers. (5 marks)
‡ If the government imposes a µprice-ceiling¶ at  ,
what will be the market price and quantity
transacted? Explain your answer. (4 marks)

½ ½ ½
8#  | # 

‡ Suppose the government abolishes the subsidy on

cattle slaughtering services. The total expenditure on
cattle slaughtering services decreases as a result.

a. Based on the information above, explain the elasticity

of demand for slaughtering services with the aid of a
diagram. (6 marks)

b. Use another diagram to explain how the abolition of the

subsidy affects the price of beef. (4 marks)
8#  | # 

‡ Read the following about   


imported red wine in Hong
‡ The government has imposed  
a $4 per unit tax on red wine.
Suppose the government   
abolishes this tax.   
a. Calculate the change in the
net revenue of the importers.  
b. Find the loss of revenue for   
the government.




Original e = $ 5
  -. Original ½e = 

New e = !3
New ½e = 4
   . Therefore,

  change in net
revenue = [ 3 x 4 -
   . ( 5 -4) x  ]= $7
oss in government
  &. revenue = 4 x  =
   ,. $4