Please stick the barcode label here. ARISTO EDUCATIONAL PRESS HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION Candidate Number ECONOMICS PAPER 2 (Mock Test 12) Question-Answer Book Marker’s Use Only Marker No. Time allowed: 2 hours 15 minutes This paper must be answered in English Question No. Marks 1 2 INSTRUCTIONS 3 (1) 4 After the announcement of the start of the examination, you should first write your Candidate Number in the space provided on Page 1 and stick barcode labels in the spaces provided on Pages 1, 3, 5, 7, 9, 11, 13, 15, 17, 19, 21 and 23. 5 6 7 (2) This paper consists of three sections, A, B and C. Answer ALL questions in sections A and B. Attempt any ONE question in section C. 8 9 (3) Write your answers in the space provided in this Question-Answer Book. Do not write in the margins. Answers written in the margins will not be marked. 10 11 (4) (5) 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 string INSIDE this book. No extra time will be given to candidates for sticking on the barcode labels or filling in the question number boxes after the ‘Time is up’ announcement. HKDSE-ECON 2-1 (Mock Test 12) 12 13 14 Total © 2015 Aristo Educational Press Ltd. Section A (50 marks) Wilson is choosing between the different ways of going to the airport. He can either take an airport bus, or hire a car through “Uber”, a car calling service application. The hiring fare of a car is higher than the fare of an airport bus. (a) Must Wilson’s opportunity cost of hiring a car through “Uber” to go to the airport be necessarily higher than that of taking an airport bus? Explain. (3 marks) (b) Explain whether each of the following is a positive statement or a normative statement. (i) The government should take action to safeguard the income of taxi drivers as they have lost part of the customers because of the presence of “Uber”. (2 marks) (ii) The applications of smartphone are not free goods even though they can be downloaded free of charge. (2 marks) Answers written in the margins will not be marked. Answers written in the margins will not be marked. 1. Answers written in the margins will not be marked. HKDSE-ECON 2-2 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Please stick the barcode label here. Recently, many themed cafés have been set up in the industrial buildings in districts like Kwun Tong and Lai Chi Kok. (a) Give ONE example of variable factor incurred in operating these cafés. Explain. (2 marks) (b) Give TWO reasons why the market structure of themed cafés in Hong Kong is NOT perfect competition. (4 marks) Answers written in the margins will not be marked. Answers written in the margins will not be marked. 2. Answers written in the margins will not be marked. HKDSE-ECON 2-3 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Tsui Wah Holdings Limited is a restaurant chain in Hong Kong listed on the stock exchange (stock code: 1314). (a) State TWO changes to Tsui Wah Holdings Limited when it changed from a private limited company to a listed company. (2 marks) (b) In Hong Kong, many restaurants pay their part-time workers by time rate. From the viewpoint of the employer, explain ONE advantage and ONE disadvantage of the time rate scheme over the piece rate scheme. (4 marks) Answers written in the margins will not be marked. Answers written in the margins will not be marked. 3. Answers written in the margins will not be marked. HKDSE-ECON 2-4 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Please stick the barcode label here. Due to global recession, Country A’s government decides to lower the effective minimum wage rate. Suppose the new minimum wage rate is still effective. With the aid of a diagram, explain under what condition the total wage earnings of workers would increase. (6 marks) Answers written in the margins will not be marked. Answers written in the margins will not be marked. 4. Answers written in the margins will not be marked. HKDSE-ECON 2-5 (Mock Test 12) © 2015 Aristo Educational Press Ltd. A government official of Country A says, “To finance budget deficit, I suggest introducing a per-unit tax on sellers for every hi-tech product sold in the market.” What is a budget deficit? (2 marks) (b) Using the law of demand, explain why the proportion of the latest model hi-tech products sold in the market will increase compared with the old model ones after the imposition of the tax. (5 marks) Answers written in the margins will not be marked. (a) Answers written in the margins will not be marked. 5. Answers written in the margins will not be marked. HKDSE-ECON 2-6 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Please stick the barcode label here. On 27 February 2015, Hong Kong passed the law on statutory paternity leave. An eligible male employee is entitled to 3 days’ paternity leave for each of his spouse/partner’s pregnancies. (a) How would the imposition of statutory paternity leave affect labour supply of Hong Kong? Explain. (2 marks) (b) Suppose many male workers who are working in the Mainland plan to return to Hong Kong for work. Suppose the number of job positions in Hong Kong remains unchanged. Explain the effect of the above phenomenon on the unemployment rate in Hong Kong. (4 marks) Answers written in the margins will not be marked. Answers written in the margins will not be marked. 6. Answers written in the margins will not be marked. HKDSE-ECON 2-7 (Mock Test 12) © 2015 Aristo Educational Press Ltd. The following table shows the amount of resources required to produce food and watches by Country A and Country B respectively. 1 unit of food 1 unit of watches Country A 8 units 12 units Country B 5 units 10 units (a) Which country would export watches according to the comparative advantage? (3 marks) (b) Suppose the watch-exporting country would gain 0.2 units of food per unit of export. Find the terms of trade of watches when the two countries engage in trade. (3 marks) Answers written in the margins will not be marked. Answers written in the margins will not be marked. 7. Answers written in the margins will not be marked. HKDSE-ECON 2-8 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Please stick the barcode label here. The exchange rate of the Japanese yen against the Hong Kong dollar decreased by over 10% in 2014. Explain how the above change in the exchange rate would affect the number of Japanese visiting Hong Kong. (3 marks) (b) WITHOUT using a diagram, explain under what condition the total value (in terms of Hong Kong dollars) of Hong Kong imported goods from Japan would increase due to the above change in the exchange rate. (3 marks) Answers written in the margins will not be marked. (a) Answers written in the margins will not be marked. 8. END OF SECTION A Answers written in the margins will not be marked. HKDSE-ECON 2-9 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Section B (54 marks) 9. Online shopping has become popular over the past decade. The development of information technology has lowered the cost of operating an online shop. (a) (i) State TWO possible reasons to explain this phenomenon. (4 marks) (ii) Explain why this may lead to a decrease in the rent of premises. (3 marks) The popularity of online shopping is also speeding up the development of electronic money. People are using electronic money more frequently. With the aid of a diagram, explain how this phenomenon would affect the nominal interest rate. (5 marks) Answers written in the margins will not be marked. Answers written in the margins will not be marked. (b) The price of an item sold in an online shop is generally lower than an identical item sold in a physical store. Answers written in the margins will not be marked. HKDSE-ECON 2-10 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Answers written in the margins will not be marked. Answers written in the margins will not be marked. Please stick the barcode label here. Answers written in the margins will not be marked. HKDSE-ECON 2-11 (Mock Test 12) © 2015 Aristo Educational Press Ltd. 10. Read the following news extract. ... The incident of lead (鉛) in drinking water spread over the territory. Laboratory results of drinking water samples collected from different flats of various public housing estates showed an elevated level of lead. Meanwhile, results of water samples collected from some schools also revealed an excessive level of lead … The public raise concerns about the safety of drinking water due to the incident of lead in drinking water. Many people therefore install water filters at home by themselves. With the aid of a diagram, illustrate the change in revenue of water filter producers. (4 marks) (b) The government plans to subsidise the affected schools to install water filters. Suppose the subsidy is provided to water filter producers on a per-unit basis. With the aid of a diagram, explain whether the provision of the subsidy is efficient. (8 marks) (c) A political party suggests that the government should provide free installation of water filters for the affected public housing residents. Evaluate the above proposal in terms of equity. (3 marks) Answers written in the margins will not be marked. Answers written in the margins will not be marked. (a) Answers written in the margins will not be marked. HKDSE-ECON 2-12 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Answers written in the margins will not be marked. Answers written in the margins will not be marked. Please stick the barcode label here. Answers written in the margins will not be marked. HKDSE-ECON 2-13 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Study the following information about Country A. Nominal GDP Real GDP ($ million) ($ million) 2013 580,000 590,000 2014 630,000 600,000 Year (a) Calculate the implicit price deflator of GDP in the above two years and find the inflation rate in 2014. (3 marks) (b) In 2013, Mr. Cheung lent out a sum of money to his friend at a nominal interest rate of 8%. He expected the inflation rate in 2014 to be 5%. Based on the answer in (a), what is the actual real interest rate Mr. Cheung received in 2014? (2 marks) (c) Using the quantity theory of money, explain the change in the money supply of Country A in the short run. (3 marks) (d) List TWO reasons to explain why real GDP may understate Country A’s citizen’s living standard. (4 marks) Answers written in the margins will not be marked. Answers written in the margins will not be marked. 11. Answers written in the margins will not be marked. HKDSE-ECON 2-14 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Answers written in the margins will not be marked. Answers written in the margins will not be marked. Please stick the barcode label here. Answers written in the margins will not be marked. HKDSE-ECON 2-15 (Mock Test 12) © 2015 Aristo Educational Press Ltd. The table below shows the balance sheet of a banking system. Suppose the banks have $1,000 excess reserves and the public always hold $1,000 cash. Assets ($) Liabilities ($) Reserves 3,000 Loans 5,000 Deposits 8,000 (a) Calculate the required reserve ratio. (b) Suppose the banking system eventually loans out all of its excess reserves. Calculate the new money supply. (2 marks) (c) Suppose the government would like to boost the economy by lowering the discount rate. (d) (1 mark) (i) Explain how lowering the discount rate would affect the money supply. (2 marks) (ii) With the aid of a diagram, explain the short run effects of the above measure on output and price levels of the economy. (7 marks) An economist stated, “In the long run, adjusting the discount rate will not help increase output.” Justify his statement WITHOUT using a diagram. (3 marks) Answers written in the margins will not be marked. HKDSE-ECON 2-16 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Answers written in the margins will not be marked. Answers written in the margins will not be marked. 12. Answers written in the margins will not be marked. Answers written in the margins will not be marked. Please stick the barcode label here. Answers written in the margins will not be marked. HKDSE-ECON 2-17 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Answers written in the margins will not be marked. Answers written in the margins will not be marked. END OF SECTION B Answers written in the margins will not be marked. HKDSE-ECON 2-18 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Please stick the barcode label here. Section C (16 marks) Answer any ONE question. Elective 1 13. The footware retail market of a country is perfectly competitive. The following diagram shows the demand curve and the marginal cost curve of the market. Unit price D 0 Quantity (a) Indicate the profit-maximising output (Qc) and price (Pc) of footware in the above diagram. (1 mark) (b) Suppose all the firms in the market act together and behave like a monopoly, and adopt simple monopoly pricing to maximise profit. (i) Given the marginal cost remains unchanged, how do you think the quantity and price of footware will be affected? Indicate the new output (Qm) and price (Pm) in the above diagram. (3 marks) (ii) With the aid of the above diagram, explain whether this pricing arrangement is efficient. (3 marks) (c) Customers showing a valid student identity card can enjoy a 10% discount on footware. Explain whether this pricing arrangement constitutes price discrimination. (3 marks) (d) Firms in the footware retail market are accused of participating in horizontal agreement. (i) List TWO forms of horizontal agreement. (ii) Do you support the introduction of a competition policy? Give TWO reasons to justify your point of view. (4 marks) Answers written in the margins will not be marked. Answers written in the margins will not be marked. MC (2 marks) Answers written in the margins will not be marked. HKDSE-ECON 2-19 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Answers written in the margins will not be marked. Answers written in the margins will not be marked. Answers written in the margins will not be marked. HKDSE-ECON 2-20 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Answers written in the margins will not be marked. Answers written in the margins will not be marked. Please stick the barcode label here. Answers written in the margins will not be marked. HKDSE-ECON 2-21 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Elective 2 14. The following diagram shows the production possibility frontier (PPF) of Country A. Good Y (units) 500 400 300 200 100 0 Good X (units) 100 200 300 400 500 Suppose the international price of a unit of good Y is 1.5 units of good X and Country A engages in complete specialisation in production. (a) Draw the consumption possibility curve and the production point of Country A after trade on the above diagram. (3 marks) (b) Calculate the gain from trade per unit of export for Country A. (c) Country A exports 1/3 of its output in exchange for imports. Indicate the consumption point and the import volume of Country A on the above diagram. (3 marks) (d) Suppose Country A discovers a new technology that can double the productivity of good X and does not affect the productivity of good Y. Is trade still beneficial to Country A? Explain. (3 marks) (e) Human Development Index (HDI) is often used to reflect the level of economic development of a country. (2 marks) (i) List ONE possible reason why the HDI of an open economy is generally higher than a closed economy. (1 mark) (ii) Besides engaging in trade, state ONE government policy that could raise the HDI of a country. (2 marks) Answers written in the margins will not be marked. Answers written in the margins will not be marked. PPF (iii) Give ONE possible reason why HDI may not accurately reflect the living standard of people of a country. (2 marks) Answers written in the margins will not be marked. HKDSE-ECON 2-22 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Answers written in the margins will not be marked. Answers written in the margins will not be marked. Please stick the barcode label here. Answers written in the margins will not be marked. HKDSE-ECON 2-23 (Mock Test 12) © 2015 Aristo Educational Press Ltd. Answers written in the margins will not be marked. Answers written in the margins will not be marked. END OF PAPER Answers written in the margins will not be marked. HKDSE-ECON 2-24 (Mock Test 12) © 2015 Aristo Educational Press Ltd.
