Section 13: Efficiency

1. 2014Q3
Figure 1 shows the market supply and demand curves of Good X. Suppose the government
raises the price floor from Pa to Pb.

With the aid of Figure 1, explain whether the rise in the price floor could enhance economic
efficiency. (6 marks)

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2. 2012Q5c*
Country A has impose an effective price ceiling on Good X.
(c) Suppose the effective price ceiling is lowered. Will the change in price ceiling improve
economic efficiency? Explain your answer with aid of a diagram. (4 marks)

Price

Quantity

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3. 2014Q9
Many countries have considered imposing ‘soft drink tax’ for health reasons. Suppose a country
decides to impose a per unit tax on the sellers for every bottle of soft drink sold in the market.
(a) Under what condition will the soft drink buyers in the country bear a greater tax burden
than the sellers? Illustrate your answer with a supply-demand diagram. (5 marks)
(b) Using the same diagram in (a), indicate the change in consumer surplus after the tax is
imposed. (1 mark)
Price

Quantity

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4. 2015Q3
An increase in an effective quota in the market of a good would lead to a reduction in
deadweight loss. Do you agree? Explain your answer with the aid of a diagram. (6 marks)

Price

Quantity

5. 2015Q12d
Research shows that the “Individual Visit Scheme” of mainland tourists has brought economic
benefits to Hong Kong. However, more and more Hong Kong residents have called on the
government to reduce the number of mainland tourists to Hong Kong under the Scheme.
(d) Some residents complained that the large number of tourists overloaded the public
transportation system, resulting in a large increase in travel time for all passengers.
Explain, in terms of externality, why inefficiency may exist when the transportation system
is overcrowded. (4 marks)

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6. 2016Q4
These years many customers like to take photos of the food they have in restaurants and share
them on social media. However, some high-end restaurants do not allow their customers to take
photos. Explain how the “photo-taking-and-sharing” behaviour of the customers may involve
externality. (3 marks)

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7. 2016Q11b,d
Medical service is one of the basic human needs.
Source A: a conversation outside a public clinic in Hong Kong
Son: Dad, I feel very ill.
Father: Oh no! There is a long queue waiting.
Son: Why don’t we go to a private doctor?
Father: The fee charged by public clinics is only $45, much lower than that charged by
private doctors.
(b) With reference to Source A, explain with the aid of Figure 1 how the price set by public
clinics may lead to economic inefficiency in the provision of public medical service. (6
marks) (Assume the supply curve in Figure 1 fully reflects the marginal social cost of
public medical service.)

Source B: an extract from the Hospital Authority webpage

The Hospital Authority is committed to providing community-based primary care services.
Our target patients include the elderly, low-income individuals, and patients with chronic
diseases.
(d) Many people argue that public clinics should raise the fee to reduce the waiting time.
Evaluate this argument in terms of economic efficiency. (2 marks)

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8. 2017Q4
Pokémon Go is a popular game for which gamers need to move around different places with
then smartphones to catch the cyber-pets. Its developer has placed hotspots in different areas
where many gamers are attracted to gather. Some restaurants in remote areas found their
business sharply increased as they are located near these hotspots.
(a) Based on the above information, explain, in terms of externality, how the placing of the
hotspots may result in inefficiency. (3 marks)
(b) How may such a problem of inefficiency be relieved by market? (2 marks)

9. 2017Q11b
The government of Country X introduces a per-unit subsidy to the education services of private
universities.
(b) ‘The subsidy causes inefficiency even though both students and universities benefit.'
Defend the statement by comparing the marginal cost and marginal benefit in Figure 3. (3
marks)

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10. 2018Q10c
Foreign domestic helpers are paid with a minimum wage at HK$4 410 per month for a two-year
contractual period in Hong Kong.
(c) Suppose the minimum wage in the market of foreign domestic helpers in Hong Kong is
effective. With the aid of Figure 2, explain how it may result in economic inefficiency. (4
marks)

11. 2019Q4
Getting vaccinated is an effective way to prevent infection and protect oneself from flu viruses.
Using the concept of externality, explain why the government provision of subsidy on Seasonal
Influenza Vaccination (接種季節性流感疫苗) may improve economic efficiency. (4 marks)

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12. 2019Q11b
The Guangzhou-Shenzhen-Hong Kong Express Rail Link (High Speed Rail) was launched in
September 2018.
(b) During non-holidays, there are a lot of empty seats on some trains of the High Speed Rail.
With the aid of Figure 1, explain why the above situation may be inefficient. (4 marks)

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13. 2020Q10c

(c) Economists argue that tariff may harm both the consumers and producers.

With reference to the above supply-demand diagram, complete the table below. (3 marks)

Before tariff After tariff

Consumers’ surplus Area adf
Producers’ surplus

14. 2021Q10d
Masks have become a daily necessity as it is compulsory for people to wear masks in many
public areas.
To stabilise the supply of surgical masks in Hong Kong, the Government has launched the
'Local Mask Production Subsidy Scheme', which provides subsidy to local mask producers.
(d) Wearing surgical mask can reduce the chance of contracting diseases for an individual and
can prevent spreading diseases to others as well. In terms of externality, explain how the
subsidy could improve economic efficiency. (4 marks)

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15. 2022Q10a,b
The Olympic Games attract billions of international television viewers to watch the
competitions among thousands of top athletes.
(a) Some restaurants in shopping malls find their businesses increase sharply when the malls
broadcast Olympic events. Explain how the broadcast of Olympic events may result in a
divergence between private and social benefits. (3 marks)
(b) Suppose the divergence in part (a) does exist. How can market mechanism help reduce this
divergence? (2 marks)

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