S.K.H. Leung Kwai Yee Secondary School 2006-07 First Term Examination F. 5 Economics Paper 1.

S.K.H. Leung Kwai Yee Secondary School

2006-07 First Term Examination

F. 5 Economics

Paper 1

1.As we all know that Mr. Lee Ka Shing is one of the wealthiest people

in Hong Kong. He is so rich that he is able to buy most of the things he wants.

(a.)An economic student said that since Mr. Lee is so rich, he does not face the problem of scarcity. Do you agree with that economic student? Explain. (3 marks)

• No. (1)• scarcity is a situation where the availability of resources

is insufficient to satisfy all wants. (1)• although Mr. Lee is very rich, he may still have some

wants, such as better health or love from others, cannot be satisfied by his wealth. (1)

(b.) Because he is so wealthy, Mr. Lee is able to buy a multiple-way round the world air ticket and travel any place he wants. If finally Mr. Lee decides to go visit Canada in the coming summer holidays, explain whether his opportunity cost of traveling Canada is zero. (3 marks)

(b.) Because he is so wealthy, Mr. Lee is able to buy a multiple-way round the world air ticket and travel any place he wants. If finally Mr. Lee decides to go visit Canada in the coming summer holidays, explain whether his opportunity cost of traveling Canada is zero. (3 marks)

• No. (1)

• opportunity cost is the highest-value option forgone. (1)

• although Mr. Lee can travel any place he wants, as long as he needs to give-up any other option, such as going to other places or doing other things, in order to go visit Canada in the coming summer holidays, his cost to Canada is not zero. (1)

2. The table below shows the input-output relationship of a firm.

Labour (units) Machine (units) Total output of labour (units)

345678

222222

30100180250310360

State the law of diminishing marginal returns and explain whether the above data illustrate the law. (6 marks)

2. Labour (units) Total output of labour (units)

Marginal product (units)

2

345678

30100180250310360

--7080706050

The law of diminishing marginal returns states that when there is a variable factor added to a fixed amount of fixed factor continuously, the marginal product will eventually decrease, holding all other factors (including technology) constant.

Yes, the above data has illustrated the law of diminishing marginal returnsas the marginal product decrease when the 6th unit of labour has been employed.

2

1

1

3. When it started, the Walt Disney Company produced cartoon movies only. Later it expanded its business to owning and operating Disneyland theme parks and hotels.Explain what type of expansion this is and state TWO possible motives for such a type of expansion. (4 marks)


Conglomerate expansion becausemovie production and hotel business are two different lines of production.ORLateral expansion becausethe products are related but not competitive.

1+1


Possible motives of conglomerate expansion or lateral expansion:-product diversification to spread risk-making use of brand name to sell another product / promoting goodwill-more flexible use of resources-to benefit from economies of scale-any other relevant point[Mark the FIRST TWO points only.]

1@, max

2

4.

The following diagram shows the production chain of

computers in Country A. Its computer factories import $50

million worth of raw materials.

Calculate the contribution of the above production chain to Country A’s

(a.) Gross domestic product (GDP) at factor cost using the expenditure approach. (3 marks)

Local Computers Factories

LocalWholesalers

Other Countries

LocalConsumers

$50 million $70 million

$60 million

$55 million($2.5 million sales tax inclusive)

4.





(a.) Gross domestic product (GDP) at factor cost using the expenditure approach. (3 marks)


LocalWholesalers

Other Countries

LocalConsumers


$60 million


$(60+55-50) - $2.5= $62.5 million

12

4.





(b.) GDP at market prices using the value-added approach. (3 marks)


LocalWholesalers

Other Countries

LocalConsumers


$60 million


4.





(b.) GDP at market prices using the value-added approach. (3 marks)


LocalWholesalers

Other Countries

LocalConsumers


$60 million


$(70-50) + $(60+55-70)= $65 million

12

5. Recently, there were news reporting that the eggs from Mainland China might contain some carcinogenic substances (致癌物質 ) . Explain with the aid of a diagram how this rumour would affect the equilibrium price and quantity of eggs in Hong Kong. (4 marks)

5. Recently, there were news reporting that the eggs from Mainland China might contain some carcinogenic substances (致癌物質 ) . Explain with the aid of a diagram how this rumour would affect the equilibrium price and quantity of eggs in Hong Kong. (4 marks)

Verbal Elaboration:-the rumour will lead to a decrease in the demand for eggs from Mainland China.-as a result, both equilibrium price and qauntity will decrease

1

1

5.

Diagram:-demand curve shifts to the left-indicate both equilibrium price and quantity decrease

11

Price ($)S

D1

Quantity (units)0

D2

P2

Q2 Q1

P1

6.

(a.) State the law of demand. (2 marks)

(b.) Suppose the government raises the fine for buying pirate DVDs in Hong Kong. Explain in terms of the law of demand why there are less people buying the priate DVD after the increase in fine. (2 marks)

(a.) The law of demand states that within a period of time, an increase in price of a certain good will lead to a decrease in its quantity demand or vice versa, ceteris paribus.

2

(b.) As the government raises the fine for buying pirate DVDs in Hong Kong, the price (or the cost) of buying pirate DVDs also increases. According to the law of demand, when the price of buying pirate DVDs increases, its quantity demanded will decreases (i.e. less people buying pirate DVDs), holding all other factors constant.

2

7.

There are more and more television broadcasting companies, such as TVB, ATV, Cable TV, Now.Com, Star Cable, etc, in Hong Kong nowadays.

(a.) Explain which type of market structure that television broadcasting service belong to. (2 marks)

(b.) State TWO characteristics of the above market structure. (2 marks)

(a.) Oligopoly becausethere are a few dominant sellers, such as TVB, TVB or Cable TV, in the market.

11

(b.) TWO characteristics of oligopoly are:-a few dominant sellers dominate the market-firms produce similar but differentiated products / heterogeneous products-restricted entry due to government regulation or hugh capital / technological requirement.-imperfect market information-interdependence amongs sellers-any other relevant point[Mark the FIRST TWO points only.]

1@, max

2

8. Suppose there are two workers, Peter and John. Peter, who lives in Yuen Long, is working as a clerk in school. However, John is a lawer who lives in Wan Chai. Based on the information above, explain who has higher occupational mobility and who has higher geographical mobility respectively. (4 marks)

Peter has higher occupational mobility becausehis cost of changing job is lower than Peter.John has higher geographical mobility becausethe transportation is more convenient and less costly for John.

1111

9.

The HKSAR government has decided to start selling the residential flats at Ngau Tau Kok (牛頭角 ) under the Home Ownership in January, 2007.

(a.) Explain with the aid of a diagram how it would affect the equilibrium price and quantity of the private housing nearby next year. (4 marks)

As both private housing and housing under the Home Ownership Scheme are substitutes, the demand for private housing nearby Ngau Tau Kok will decreases.Hence, the equilibrium price and quantity will both decrease.

1

1

9.

Diagram:-demand curve shifts to the left-indicate both equilibrium price and quantity decrease

11

Price ($)S

D1

Quantity (units)0

D2

P2

Q2 Q1

P1

9.


(b.) Due to the downturn of the private housing market since the late 1990s, although many flats have been built, the HKSAR government has suspended the HOS (Home Ownership Scheme) for many years. Suppose Mr. Chan will spend HK$1.2 million on buying a flat under the HMO in January 2007. Give TWO reasons to explain why the above transaction will contribute much less than HK$1.2 million to Hong Kong's GDP in the fiscal year of 2006-07. (4 marks)[Remark: The fiscal year of 2006-07 starts from 1st April 2006 to 31st March,2007]

9.


TWO reasons are: -the HMO housings at Ngau Tau Kok were not built in the fiscal year of 2006-07-some of the materials used in building the HMO housing were imports from other countries.-any other relevant point[Mark the FIRST TWO points only.]

2@; max 4

9.


(c.) Suppose before moving in, Mr. Chan hires an interior designer to design a floor plan and buys furniture directly from a furniture manufacturer in mainland China for his new flat. Explain what type of production that the interior designer and the furniture manufacturer belong to respectively. (4 marks)

The interior designer belongs to teritary production as he/she provides services to the consumers.The furniture manufacturer belongs to secondary production as it turns raw materials into semi-finished or finished goods.

1+1

1+1

9.


(d.)

Suggest TWO ways for the furniture manufacturer to improve labour productivity. (2 marks)

TWO waygs to improve labour productivity are: -provide better working environment-provide more rewards and benefits to employees-use of divisioin of labour-provide training course to employees-use of machinery and more advanced technology in production-any other relevant point[Mark the FIRST TWO points only.]

1@; max 2

10. (a.) The units of labour required to produce one unit of clothing and handbags in Germany and France are as follows:

Countries Clothing (units) Handbags (units)

Germany 4 L 5 L

France 2 L 4 L

(i.) Which country has an absolute advantage in producing clothing and handbags respectively? Explain. (2 marks)



Germany 4 L 5 L

France 2 L 4 L

(i.) Which country has an absolute advantage in producing clothing and handbags respectively? Explain. (2 marks)

(i.)

France has the absolute aadvantage in producing clothing and handbags as it has higher productivity in producing these two goods. (i.e. it requires less labour input in order to produce the same amount of output.)

1 + 1



Germany 4 L 5 L

France 2 L 4 L

(ii.) Based on your answer in (a.) (i.), should the country specializes in producing the product which it has an absolute advantage? If not, which product should it choose to specialize in ? (3 marks)



Germany 4 L 5 L

France 2 L 4 L

No.France’s opportunity cost of producing clothing is 2/4 = 0.5 units of handbags.Germany’s opporutnity cost of producing clothin is 4/5 = 0.8 units of handbags.Hence, France should specialize in producing clothing as its opportunity cost of producing clothing is lower than that of Germany.[No mark will be given if there is no calculation shown in the answer.]

11

1



Germany 4 L 5 L

France 2 L 4 L

(iii.)

Calculate the gain from trade of both Germany and France if 30 units of clothing have been exported at an exchange rate of 1C = 0.6H ? (4 marks)

France’s gain from trade:(0.6 – 0.5) x 30 = 3 units of handbagsGermany’s gain from trade:(0.8 – 0.6) x 30 = 6 units of handbags

22



Germany 4 L 5 L

France 2 L 4 L

(iv.) Suppose there is a transportation cost at 1C = 0.5H. Explain whether there is still a mutually beneficial trade between Germany and France. (3 marks)

No.The total gain from trading one unit of clothing between France and Germany are: 0.8 – 0.6 = 0.2 units of handbags.As the transportation cost is greater than the total gain from trade, there will be no mutually beneficial trade between the two countries.

11

1

10. (b.) Mr. Perry is a manufacturer of handbags in Germany. Previously, he was the sole owner of his business. Later he found that it would be more beneficial to invite Mr. Chan, a Hong Kong investor, to join him. Give TWO reasons for such a change in form of business ownership. (4 marks)

TWO reasons for the change in form of business ownership are:-more sources of capital-wider scope of specialization-risk-sharing amongs partners-any other relevant point[Mark the FIRST TWO points only.]

2@; max

4

11. The following table shows the GDP items of Country X in 2006.

$ (billion)

Private consumption expenditureGovernment consumption expenditureGross domestic fixed capital formationChange in inventoriesTransfer paymentTotal exports of goodsTotal imports of goodsTotal exports of servicesTotal imports of servicesNet Income from abroadIndirect taxes less subsidies

46962

285- 1526

1 3451 42420313710.563

(a.) Calculate the GDP at market price and state the approach you used. Show your working. (3 marks)

GDP = $(469 + 62 + 285 – 15 + 1 345 + 203 – 1 424 – 137)billion = $788 billion.[No mark will be given if there is no calculation shown in the answer.]Expenditure approach.

11

1

11. The following table shows the GDP items of Country X in 2006.

$ (billion)

Private consumption expenditureGovernment consumption expenditureGross domestic fixed capital formationChange in inventoriesTransfer paymentTotal exports of goodsTotal imports of goodsTotal exports of servicesTotal imports of servicesNet Income from abroadIndirect taxes less subsidies

46962

285- 1526

1 3451 42420313710.563

(b.) Given that there are 6 million people and the price index of the current year is 98 in Country X. Find the per capita GDP at constant price of Country X in 2006. (2 marks)

Per capita GDP at constant price = $(788 billion x 100/98) / 6 million= $134 013.60

11

11. (c.) Dr. Economics said, ‘Country X’s GDP underestimates the amount of goods and services available for the Country X economy.”Give TWO reasons to support Dr. Economics’ statement.(4 marks)

TWO reasons to support Dr. Economics’ statement are:-leisure raises standard of living but it is not counted inn the GDP-the improve in quality of output is not couted in the GDP-if there is a large part of a country’s product is for self-consumption, GDP will also underestimate the true standard of living.-any other relevant point[Mark the FIRST TWO points only.]

2@; max

4

(d.) Suppose the trading partner of Country X has imposed a quota on Country X’s exports. Explain with the aid of a diagram, under what condition that the total exports of goods contributed to Country X’s GDP will increase. (7 marks)

The quota will lead to an increase in price but decrease in quantity transaction of Country X’s exports.When the demand for Country X’s exports is inelastic, the percentage increase in price is greater than the percentage decrease in quantity demanded such that the gain in total revenue from exports is greater than the loss.Hence, the total exports of goods contributed to Country X’s GDP will increase.

1

12

GAIN

LOSSD

Price ($)

Quantity

(units)0

S1

S2

Q1Q2

P2

P1

Gain > Loss

S.K.H. Leung Kwai Yee Secondary School 2006-07 First Term Examination F. 5 Economics Paper 1.

Documents

Transcript of S.K.H. Leung Kwai Yee Secondary School 2006-07 First Term Examination F. 5 Economics Paper 1.