ECONOMICS PAPER 1 (SAMPLE PAPER) HONG KONG EXAMINATIONS AND ASSESSMENT AUTHORITY

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HONG KONG EXAMINATIONS AND ASSESSMENT AUTHORITY
HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION
ECONOMICS
PAPER 1
(SAMPLE PAPER)
Duration: 1 hour
INSTRUCTIONS
1.
Read carefully the instructions on the Answer Sheet. Stick a barcode label and insert the information
required in the spaces provided.
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 answers can be completely erased with a clean rubber.
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.
Not to be taken away before the
end of the examination session
HKDSE-ECON 1−1 (Sample Paper)
34
There are 40 questions in this paper.
1.
The existence of scarcity implies that
A.
B.
C.
D.
2.
Choose the BEST answer for each question.
human wants are unlimited.
all goods are economic goods.
there is a cost in obtaining some goods.
each and every economic good must have a market price.
Mary is choosing between two ways of spending her Christmas vacation: to work for her uncle and earn
$3 000 or to join a cultural tour to Beijing.
Which of the following will lower Mary’s opportunity cost of working for her uncle?
A.
B.
C.
D.
3.
A positive statement
A.
B.
C.
D.
4.
Mary’s uncle reduces her wage to $2 000.
The fee for the cultural tour decreases.
An attractive section of the cultural tour is canceled.
Mary’s uncle agrees to employ her best friend to work with her.
is always true.
is refutable with facts.
may contain a value judgment.
may be the same as a normative statement if certain values are shared by many people.
Study the following information about Firm X and Firm Y.
Firm X
Firm Y
Number of owners
2
50
Raising capital in
the stock market
possible
not possible
Liability
limited
limited
According to the above information, Firm X is a __________ and Firm Y is a __________.
A.
B.
C.
D.
public limited company … private limited company
private limited company … partnership
private limited company … public limited company
public limited company … partnership
HKDSE-ECON 1−2 (Sample Paper)
35
5.
Which of the following is an example of public good?
A.
B. C. D.
6.
Which of the following would raise the average labour productivity?
A.
B. C. D. 7.
a study room provided by a charity organization
a public football court
a poem by Li Bai (李 白 )
an abandoned factory building
an increase in the number of imported foreign specialists
an increase in the average working hours
a ban on the use of environmentally harmful machines
a cut in government subsidies for continuing education
A firm increases all its inputs to double its output.
change in output.
The following table shows the change in total cost after a
Total Output (Units)
Total Cost ($)
10 000
60 000
20 000
140 000
Based on the above information, we can conclude that
A. B. C. D. 8.
the firm enjoys economies of scale.
the firm suffers from diseconomies of scale.
the firm cannot cover its cost after doubling the output.
the optimal scale of production is 10 000 units of output.
The marginal cost schedule of a firm can be interpreted as its supply schedule in the production of a good
because
A. marginal cost will increase when the output of the firm increases.
B. we can tell the quantity of the good the firm plans to produce from the marginal cost schedule
given the price of the good.
C. the quantity of the good the firm plans to produce depends positively on the marginal cost of
producing the good.
D. we can tell the price of the good from the marginal cost schedule given the quantity of the good.
HKDSE-ECON 1−3 (Sample Paper)
36
9.
Suppose a Chinese computer manufacturer takes over a US computer manufacturer. Which of the
following is NOT an advantage to the Chinese computer manufacturer in the above takeover?
A.
B.
C.
D.
10.
turning a competitor into a partner
diversifying risk of demand fluctuation
building up the goodwill of the company
lowering the average cost of production
Peter Pang is an indigenous male resident in the New Territories. Which of the following are guided by
price signals?
(1) He buys a concessionary house (丁 屋 ) from his cousin.
(2) He is given a red packet by the Indigenous Inhabitant Representative (原 居 民 代 表 ) during the Lunar
New Year.
(3) He rents one of his concessionary houses to a tenant who is not an indigenous resident.
A.
B.
C.
D.
11.
(1) and (2) only
(1) and (3) only
(2) and (3) only
(1), (2) and (3)
Suppose the European Union imposes an import surcharge on China-made leather shoes exported to its
member countries. In the member countries of the European Union,
A.
B.
C.
D.
the price of these goods will rise.
the price of these goods will fall.
the total expenditure on these goods will rise.
the total expenditure on these goods will fall.
HKDSE-ECON 1−4 (Sample Paper)
37
Answer Questions 12 and 13 by referring to the following information:
The graph below shows the market situation of Good X when the government provides a per-unit subsidy of $30 to
the producers.
Unit Price
S
D
150
E
130
100
D
S
50
0
12.
10
20
24
30
40
Suppose the government abolishes the above per-unit subsidy.
__________.
A.
B.
C.
D.
50
Quantity
The new market price would be
$100
$120
$140
$160
13. Within the range of the original and new market prices, the elasticity of supply of Good X is
A.
B.
C.
D.
smaller than its elasticity of demand.
equal to its elasticity of demand.
greater than its elasticity of demand.
unity.
HKDSE-ECON 1−5 (Sample Paper)
38
14. During winter, women tend to buy more hydrating facial cream. As a result, the price of bottled hydrating
facial cream of a particular brand changed by 20% and its quantity transacted rose from 2 000 bottles to
2 800 bottles per month.
We can conclude that within the above price range this bottled hydrating facial cream had
A.
B.
C.
D.
an elastic demand.
an inelastic demand.
an elastic supply.
an inelastic supply.
15. The following diagram shows the hotel accommodation market in London.
equilibrium point.
Point E is the original
Unit Price
D0
D2
D1
X
S1
S0
S2
E
W
Y
S1
D2
S0
S2
D0
Z
D1
0
Quantity
Suppose there is a bomb attack in a tube (subway) station and there is a rise in the operating cost of hotels in
London. The new equilibrium point in the diagram would be __________.
A.
B.
C.
D.
16.
W
X
Y
Z
In order to reduce the number of plastic bags used, the government plans to impose a charge on consumers
according to the number of plastic bags that consumers obtain from shops.
Which of the following concepts can be used to explain the above policy?
A.
B.
C.
D.
the law of demand
the principle of comparative advantage
diseconomies of scale
the law of diminishing marginal returns
HKDSE-ECON 1−6 (Sample Paper)
39
17.
A market can be regarded as an oligopoly when
A. B. C. D. 18.
market information is not perfect.
the market is dominated by a few sellers.
the government restricts the entry of sellers into the market.
different sellers sell similar but differentiated products.
In which of the following situations will there be NO divergence between private and social costs / benefits?
A. A chemical factory upstream pollutes a river without considering the damage inflicted upon fish
farmers downstream.
B. A diner smokes in a restaurant without considering the effects on people nearby.
C. A farmer raises some sheep which damage the crops of nearby farmland owned by the farmer.
D. A pianist plays the piano at home and receives no payment from his neighbour who enjoys the
music.
19.
Study the following Lorenz curves of two economies.
% of
income
% of
income
% of households
% of households
Lorenz curve of Country A
Lorenz curve of Country B
From the above diagrams, we can conclude that
A. B. C.
D.
the income distribution of Country A is more even than that of Country B.
the income distribution of Country B is more even than that of Country A.
the high-income group in Country A earns a higher income than that in Country B.
the high-income group in Country B earns a higher income than that in Country A.
HKDSE-ECON 1−7 (Sample Paper)
40
20.
Suppose the government provides a per-unit subsidy to the producers of a good. This would lead to
A. an increase in consumer surplus and a fall in producer surplus, so having an ambiguous effect on
efficiency.
B. an increase in producer surplus and a fall in consumer surplus, so having an ambiguous effect on
efficiency.
C. an improvement in efficiency because both sellers and buyers would benefit from the subsidy.
D. a deadweight loss because the amount of subsidy provided by the government is greater than the
sum of the increase in consumer and producer surpluses.
21.
Study the following information of two economies.
Per capita Gross
Domestic Product (GDP)
Population
Gini Coefficient
Country A
US$10 000
20 million
0.45
Country B
US$12 000
10 million
0.3
Based on the above information, we can conclude that
A. the GDP of Country A is higher than that of Country B.
B. the income distribution of Country A is more even than that of Country B.
C. the general living standard of the low-income group in Country A is higher than that in
Country B.
D. all of the above are correct.
22.
Consider the following information about an economy:
Growth rate
(relative to previous year) (%)
Year 1
Year 2
Nominal GDP
−3
0
Real GDP
2
1
Population
2
−1
Which of the following about the economy is true?
A. B. C. D.
The real output decreased in year 2.
The per capita nominal GDP decreased in year 2.
The nominal GDP in the above two years is the same.
The general price level decreased in year 1 but increased in year 2.
HKDSE-ECON 1−8 (Sample Paper)
41
23.
Suppose the unemployed population of an economy is 300 000 while the unemployment rate is 6%.
employed population is __________.
A.
B.
C.
D.
24.
The
1 800 000
2 100 000
4 700 000
5 000 000
The diagram below shows the aggregate demand (AD) curves, the short run aggregate supply (SRAS) curves
and the long run aggregate supply (LRAS) curve of an economy.
Price Level
LRAS
SRAS2
SRAS1
E
AD2
AD1
Output
0
In the above diagram, point E is the initial equilibrium point. Which of the following are correct in the long
run?
(1)
(2)
(3)
(4)
If AD1 shifts to AD2, SRAS1 will shift to SRAS2.
If AD1 shifts to AD2, AD2 will shift back to AD1.
If SRAS1 shifts to SRAS2, AD1 will shift to AD2.
If SRAS1 shifts to SRAS2, SRAS2 will shift back to SRAS1.
A.
B.
C.
D.
25.
(1) and (3) only
(1) and (4) only
(2) and (3) only
(2) and (4) only
The short run aggregate supply curve will shift to the left if
A.
B.
C.
D.
the labour cost decreases.
the labour productivity increases.
the general price level increases.
the general price level is expected to increase.
HKDSE-ECON 1−9 (Sample Paper)
42
26. With an upward sloping short-run aggregate supply curve, an increase in the desire to import will lead to
__________ in real national income and __________ in the price level.
A. B. C. D. an increase … an increase
an increase … a decrease
a decrease … a decrease
a decrease … an increase
27. Which of the following statements about money is / are correct?
A. Deflation reduces the purchasing power of money.
B. Money does not exist in a cashless society where all transactions are settled through an
electronic payment system.
C. With the use of money in exchange, exchange is possible even when trading parties do not have
double coincidence of wants.
D. All of the above are correct.
28. If the nominal interest rate on a one-year bond is 10% and the expected inflation rate is 2%, the nominal rate
of return and the expected cost of holding cash are __________ and __________ respectively.
A.
B. C. D.
0% … 8%
0% … 10%
−2% … 8%
−10% … 10%
29. Mr Chan withdraws HK$4 000 000 from his deposit account in a restricted licence bank in Hong Kong. He
then puts HK$3 500 000 as time deposit in a licensed bank in Hong Kong and holds the remaining
HK$500 000 as cash.
The immediate effect of the above actions on the Hong Kong dollar money supply would be:
A. B. C. D. Both M2 and M3 remain unchanged.
M1 increases while M2 remains unchanged.
M2 increases while M3 remains unchanged.
M2 increases while M3 decreases.
HKDSE-ECON 1−10 (Sample Paper)
43
30.
Which of the following may cause an increase in money supply?
(1) The central bank raises the discount rate.
(2) The central bank lowers the required reserve ratio.
(3) The central bank purchases government bonds from a commercial bank.
A.
B.
C.
D.
31.
(1) and (2) only
(1) and (3) only
(2) and (3) only
(1), (2) and (3)
The table below shows the balance sheet of a banking system.
amount of its excess reserves is $600.
Assets ($)
Suppose the public holds $500 cash and the
Liabilities ($)
Reserves
1 000
Loans
1 000
Deposits
2 000
Which of the following statements about the banking system is correct ?
A.
B.
C.
D.
The required reserve ratio is 40%.
The maximum amount of deposits is $4 000.
The maximum banking multiplier is 5.
The monetary base is $2 500.
32. The classical quantity theory of money
(1) predicts that changes in money supply may have no effect on the general price level.
(2) predicts that changes in nominal national income are positively related to changes in money supply.
(3) assumes that the velocity of circulation of money is constant.
A.
B.
C.
D.
(1) and (2) only
(1) and (3) only
(2) and (3) only
(1), (2) and (3)
33. In the long run, a change in money supply will NOT affect
A.
B.
C.
D.
the price level.
the real output.
the nominal demand for money.
all of the above.
HKDSE-ECON 1−11 (Sample Paper)
44
34.
Growth rate of GDP deflator (%)
5
4
3
2
1
0
2002
2003
2004
2005
2006
Year
The above diagram shows that during the period
A.
B.
C.
D.
35.
During unemployment, an increase in money supply will NOT raise
A.
B.
C.
D.
36.
the real national income.
the nominal national income.
the price level.
the potential income.
Which of the following can help to solve an inflationary gap?
A.
B.
C.
D.
37.
there is deflation in the economy.
the growth rate of money stock is negative.
the general price level is rising.
the standard of living is rising.
an increase in taxes
an increase in budget deficit
an increase in transfer payments
an increase in government expenditure
If Country X is more productive in producing every good than Country Y,
A.
B.
C.
D.
the gain from trade of Country X will be greater than that of Country Y.
mutually beneficial trade between the two countries is still possible.
Country Y will import every good from Country X instead of producing these goods by itself.
Country X may have a lower opportunity cost in producing every good than Country Y.
HKDSE-ECON 1−12 (Sample Paper)
45
38. If a country is running a current account deficit,
A.
B.
C.
D.
39.
it must also be running a trade deficit.
its capital and financial account must be in surplus.
the foreign exchange reserves of the country must decrease.
all of the above are correct.
Suppose a country imposes a tariff on an import.
demand for the good.
Price
D
The diagram below shows the country’s supply of and
S
Pw = world price
Pw′
1
Pw
2 3
4
S
D
0
Quantity
If the domestic price of the good increases from Pw to Pw′ as a result of the tariff,
A.
B.
C.
D.
the total deadweight loss is equal to area 4.
the total loss in consumer surplus is equal to the sum of areas 2, 3 and 4.
the increase in producer surplus is equal to area 1.
the effect on consumer and producer surpluses is uncertain.
40.
Year X
Exchange rate
April
July
€1 = US$1.12
€1 = US$1.35
Under the linked exchange rate system, the above change in the exchange rate between the Euro and the
US dollar will lead to
A.
B.
C.
D.
a decrease in the number of Europeans visiting Hong Kong.
a decrease in the number of Hong Kong people visiting the US.
an increase in the quantity of European cars exported to Hong Kong.
an increase in the quantity of Hong Kong garments exported to Europe.
END OF PAPER
HKDSE-ECON 1–13 (Sample Paper)
46
HONG KONG EXAMINATIONS AND ASSESSMENT AUTHORITY
Please stick the barcode label here
HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION
ECONOMICS PAPER 2
Candidate Number
( SAMPLE PAPER )
Question-Answer Book
Duration: 2 hours This paper must be answered in English
Question
No.
1
INSTRUCTIONS
2
(1)
3
Write your Candidate Number in the space provided on
Page 1.
(2) Stick barcode labels in the spaces provided on Pages 1, 3, 5,
7 and 9.
(3)
This paper consists of three sections, A, B and C.
(4)
Section A contains eight questions.
Attempt ALL
questions. The whole section carries 50 marks.
Section B contains three questions.
Attempt ALL
questions. The whole section carries 54 marks.
(6) Attempt all questions from any ONE of the two electives in
Section C. Each elective carries 16 marks.
(8) All answers should be put in the spaces provided in this
question-answer book. Do not write in the margins.
Answers written in the margins will not be marked.
Supplementary answer sheets will be supplied on request.
Write your Candidate Number, mark the question number
box and stick a barcode label on each sheet, and fasten them
with a string INSIDE the question-answer book.
HKDSE-ECON 2–1 (Sample Paper)
5
6
(5)
(7) 4
47
7
8
9
10
11
12
13
Total
Marker’s
Use Only
Examiner’s
Use Only
Marker No.
Examiner No.
Marks
Marks
1.
The HKSAR government periodically publishes statistics related to the Hong Kong economy. Some of these
statistics can be viewed free of charge on the internet. Explain whether the statistics on the internet are free
goods.
(3 marks)
2.
Give two reasons for the existence of income inequality in an economy.
Note :
(4 marks)
The layout for Paper 2 is different from that in the actual question paper. In the original paper, there is
enough space for the candidate to write his answer to each question.
Answers written in the margins will not be marked.
HKDSE-ECON 2–2 (Sample Paper)
48
Answers written in the margins will not be marked.
Answers written in the margins will not be marked.
Section A (50 marks)
Please stick the barcode label here.
3.
The table below shows the input-output relationship of a firm.
Worker (Units)
Machine (Units)
Average output per worker (Units)
1
3
400
2
3
450
3
3
500
4
3
450
5
3
400
4.
More customers go to karaoke lounges during the weekends. However, the services are provided at a price
higher than on weekdays.
(a) Why may the fact that customers have more free time during weekends result in a higher market price
for the services provided by karaoke lounges?
(4 marks)
(b)
Explain whether customers going to karaoke lounges during weekends incur a higher or lower cost
than on weekdays.
(5 marks)
Answers written in the margins will not be marked.
HKDSE-ECON 2–3 (Sample Paper)
49
Answers written in the margins will not be marked.
Answers written in the margins will not be marked.
State the law of diminishing marginal returns and explain whether the above data illustrate the law. (6 marks)
The following is the balance sheet of a banking system.
Assets ($)
Reserves
Answers written in the margins will not be marked.
Loans
6.
Liabilities ($)
500
Deposits
1 500
1 000
(a)
Suppose the excess reserves of the banks are $275. What is the required reserve ratio?
(b) Suppose there is a cash withdrawal of $300 from the banks. Explain whether the banks still have
excess reserves immediately after the withdrawal.
(3 marks)
(a)
(i)
What is the difference between nominal and real interest rates?
(ii)
Explain under what condition the nominal interest rate would be lower than the real interest
rate.
(2 marks)
(b)
Explain why the nominal interest rate is the cost of holding money.
Answers written in the margins will not be marked.
HKDSE-ECON 2–4 (Sample Paper)
50
(1 mark)
(2 marks)
(3 marks)
Answers written in the margins will not be marked.
5.
Please stick the barcode label here.
8.
(a)
Give two reasons why the aggregate demand curve is downward-sloping.
(6 marks)
(b)
“Expansionary fiscal policy will have no effect on real income in the long run.” Do you agree?
Explain.
(3 marks)
The national income accounting equation states that Y = C + I + G + NX, where Y, C, I, G, and NX stand for
national income, consumption, investment, government expenditure, and net exports (i.e. exports minus
imports) respectively.
(a)
Define national saving as S = Y − C − G . Show that S − I = NX .
(b)
Define national saving as the sum of private and public savings so that S = S P + S G , where SP and SG
stand for private saving and public saving respectively.
(2 marks)
(i)
Explain why the fiscal deficit of an economy would be equal to its trade deficit when
SP = I .
(3 marks)
(ii) Explain the condition under which an economy could achieve a trade balance when it had a
fiscal deficit.
(3 marks)
END OF SECTION A
.
Answers written in the margins will not be marked.
HKDSE-ECON 2–5 (Sample Paper)
51
Answers written in the margins will not be marked.
Answers written in the margins will not be marked.
7.
Section B ( 54 marks )
9.
The diagram below shows the market demand for and supply of electronic watches. Assume the market of
electronic watches is perfectly competitive.
Price ($)
S
Figure 1
Answers written in the margins will not be marked.
(a)
Quantity of electronic watches
Indicate the consumer surplus and producer surplus in Figure 1.
(2 marks)
Suppose there is an improvement in technology that lowers the marginal cost of producing electronic
watches.
(b) How would the technological improvement affect the price, quantity transacted, consumer surplus and
producer surplus?
(5 marks)
(c) The schedule below shows the marginal costs of a firm which produces electronic watches before and
after the technological improvement.
Output (Units)
Marginal cost ($)
before the technological
improvement
Marginal cost ($)
after the technological
improvement
500
70
60
600
80
70
700
90
80
800
100
90
900
110
100
(i)
Is marginal cost a fixed cost or a variable cost? Explain.
(ii)
Suppose the market price of electronic watches was $80 before the technological
improvement. What is the output of the firm at this market price?
(1 mark)
(iii)
Suppose the market price of electronic watches fell to $70 after the technological
improvement. What is the output of the firm at this market price?
(1 mark)
Answers written in the margins will not be marked.
HKDSE-ECON 2–6 (Sample Paper)
52
(2 marks)
Answers written in the margins will not be marked.
D
0
Please stick the barcode label here.
(d)
Patrick is one of the owners of ABC Electronic Watches Manufacturing Ltd. He cannot transfer his
shares of the company to others in the stock market.
(i)
What kind of business ownership does ABC Electronic Watches Manufacturing Ltd
belong to?
(1 mark)
(ii)
As one of the owners of ABC Electronic Watches Manufacturing Ltd, does Patrick need to
use his own property to repay the debts of the company if the company goes bankrupt?
Explain.
(2 marks)
10. Many governments in the world face the problem of running a fiscal deficit. Some governments may
consider increasing sales tax rates with a view to increasing tax revenue.
(a) An increase in sales tax rates may reduce firms’ willingness to supply goods and services, as well as
their willingness to invest. With the aid of a diagram, explain how an increase in sales tax rates
would affect the price level and the output of an economy in the short run.
(10 marks)
(b) (i)
Do you think central banks could stabilize the price level through monetary policy after the
increase in sales tax rates? What would be the effect of such policies on output? Explain.
(8 marks)
(ii)
Based on your answer to (b)(i), do you think central banks should stabilize the price level
through monetary policy after the increase in sales tax rates? Explain.
(4 marks)
Answers written in the margins will not be marked.
HKDSE-ECON 2–7 (Sample Paper)
53
Answers written in the margins will not be marked.
Answers written in the margins will not be marked.
9.
11. Some Hong Kong politicians have demanded for the introduction of a minimum wage law for low income
earners, such as security guards and cleaning workers.
(a) (i)
the number of workers employed in that industry. (4 marks)
(ii)
the total wage earnings of the workers in that industry. (7 marks)
“A minimum wage should be introduced to protect the interests of low-income workers.” Evaluate
this proposal.
(7 marks)
Answers written in the margins will not be marked.
Answers written in the margins will not be marked.
(b)
Consider an industry in which the market wage rate is at its equilibrium. With the aid of a diagram,
explain how the introduction of an effective minimum wage would affect
END OF SECTION B Answers written in the margins will not be marked.
HKDSE-ECON 2–8 (Sample Paper)
54
Please stick the barcode label here.
Section C ( 16 marks )
Elective 1
12. Mobile phone services in Hong Kong are dominated by several providers. It is said that there is a lack of
competition in the market and some of the practices of these service providers are anti-competitive in nature.
Mobile phone service providers in Hong Kong offer various plans with different charges to their
customers. Each plan includes a certain amount of airtime and additional services such as voice mail,
call forwarding, free intra network SMS, etc. Usually, the per-minute charges for plans with more
airtime are lower than those with less airtime.
(i)
What is price discrimination?
(2 marks)
(ii)
State TWO conditions for practising price discrimination. Do the mobile phone service
providers in Hong Kong meet those conditions?
(4 marks)
(iii) Consider that, apart from the amount of airtime, a certain service provider offers the same
additional services to all customers. Is this pricing practice (charging a lower per-minute price
for plans with more airtime) an example of price discrimination? Explain your answer.
(4 marks)
(b) In early 2000, all mobile phone service providers in Hong Kong announced an increase of $20 in the
monthly charges at almost the same time.
(i) Explain why all sellers in a competitive market would charge a higher price when there is an
increase in the cost of production.
(2 marks)
(ii)
Based on the answer to (b)(i), can we conclude that sellers’ behaviour in raising prices at the
same time in a market is necessarily anti-competitive? What other evidence would be
necessary to draw such a conclusion? Explain.
(4 marks)
Answers written in the margins will not be marked.
HKDSE-ECON 2–9 (Sample Paper)
55
Answers written in the margins will not be marked.
Answers written in the margins will not be marked.
(a)
Elective 2
13. Figure 2 shows the production of Country X. AA’ and point P are the production possibilities frontier and
the production point without trade respectively.
Food
Answers written in the margins will not be marked.
A
P
0
A’
Clothing
Suppose the slope of the production possibility frontier at point P is 0.5 and the terms of trade is 1.
(a)
Without trade, what is the marginal cost of producing clothing for Country X?
(1 mark)
(b)
In the production of which good does country X have comparative advantage? Explain your answer.
(3 marks)
(c) Draw on Figure 2 the consumption possibility frontier and production point of Country X when there
is trade. Show how Country X can gain from trade.
(4 marks)
(d)
Suppose there is a technological advance in the production of both clothing and food in Country X.
(i) How will the technological advance affect the production possibility frontier of Country X? In
what sense can Country X benefit from such an advance? Illustrate your answer in Figure 2.
(4 marks)
(ii) Technological advance will usually raise a country’s per capita real GDP. In addition to the
increase in per capita real GDP, give two factors that need to be considered in measuring a
country’s level of development. Explain your answer.
(4 marks)
END OF PAPER Answers written in the margins will not be marked.
HKDSE-ECON 2–10 (Sample Paper)
56
Answers written in the margins will not be marked.
Figure 2

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