Economics Mock Exam Paper 1 (Set 10)

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ECONOMICS PAPER 1

(MOCK EXAM PAPER) (Set 10)

Duration: 1 hour

INSTRUCTIONS

(1) Read carefully the instructions on the Answer Sheet. 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.

(5) You should mark only ONE answer for each question. If you mark more than one answer, you will
receive NO MARKS for the question.

(6) No marks will be deducted for wrong answers.

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Economics Mock Exam Paper 1 (Set 10)
There are 45 questions in this paper. Choose the BEST answer for each question.
1. Mary plans to spend 3 hours at a theme park. The entrance fee is $200. She could also work as a
part-time typist during the time spent at the theme park. The hourly rate for a typist is $50.
What is her opportunity cost for a visit to the theme park?
A. $150 B. $200 C. $250 D. $350

2. Which of the following statements about economic goods is / are correct?

(1) There is a cost in producing them.
(2) There is no non-price competition in competing for economic goods.
(3) They must have a market price.
A. (1) only C. (2) and (3) only
B. (1) and (3) only D. (1), (2) and (3)

3. The government is planning to build a theatre for opera lovers. Which of the following basic economic
problems is / are involved?
(1) What to produce?
(2) How to produce?
(3) For whom to produce?
A. (1) only C. (1) and (3) only
B. (1) and (2) only D. (1), (2) and (3)

4. Which of the following descriptions about the fish in high sea (公海) is correct?
A. The private property rights of these fish are not clearly delineated.
B. They are public goods due to the high number of fish in high sea.
C. They are economic goods as producing these fish involves an opportunity cost.
D. All of the above.

5. Which of the following involves production but does NOT involve exchange?
A. A domestic helper carries out household chores for her employer.
B. A housewife takes care of her baby.
C. A man buys a set lunch in a fast food shop.
D. A teacher carries out his teaching duties at a school.

6. Which of the following is / are public good(s)?

(1) A 2015 policy address booklet
(2) Songs on YouTube
(3) Lighting in a shopping centre
A. (2) only C. (2) and (3) only
B. (1) and (2) only D. (1), (2) and (3)

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Economics Mock Exam Paper 1 (Set 10)
7. Which of the following is / are classified as capital in Economics?
(1) Newly discovered gold ore
(2) Machines for mining gold
(3) Trucks for transporting gold ore
A. (2) only C. (2) and (3) only
B. (1) and (2) only D. (1), (2) and (3)

8. Which of the following occupation has the lowest occupational mobility?

A. Part-time tutors
B. Salespeople
C. Lawyers
D. Construction workers

9. The following table shows the total product of a factory, in which labour is the only factor of
production.
Labour (units) Total product of labour (units)
1 10
2 22
3 35
4 45
5 54
6 60

According to the above table, the law of diminishing marginal returns sets in when the __________ unit
of labour is employed.
A. 3rd B. 4th C. 5th D. 6th

10. Which of the following is NOT a benefit of external economies of scale?

A. Firms could benefit from lower delivery costs from suppliers.
B. Firms could save promotion costs because the concentration of similar firms in one place has
advertising effects.
C. Division of labour in production could lower average production costs.
D. Labour recruitment and training costs could be reduced as workers with related skills may gather
together.

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Economics Mock Exam Paper 1 (Set 10)

11. Study the following information about Firm X and Firm Y.

Firm X Firm Y
Legal status Not a separate legal entity A separate legal entity
Transfer of ownership Cannot freely transfer Free to transfer
Disclosure of accounts Can keep the accounts secret Disclosure of the accounts to the
public is required

According to the above information, Firm X is a __________ and Firm Y is a __________.

A. private limited company …… public limited company
B. partnership …… private limited company
C. private limited company …… partnership
D. partnership …… public limited company

12. A car manufacturer takes over a steel factory. This is an example of __________ integration.
A. horizontal
B. forward
C. backward
D. conglomerate

13. The following table shows the production cost of a price-taking firm. When the market price of Good X
is $10, the firm’s profit-maximizing output is / are __________ unit(s).

Output of Good X (units) Total cost ($)

1 6
2 14
3 24
4 36
5 50

A. 1 B. 2 C. 3 D. 4

14. In a perfectly competitive market, the marginal cost curve of a firm can be viewed as its supply curve in
the production of a good. This is because
A. both the marginal cost curve and the supply curve are upward sloping.
B. the firm will increase output at higher prices.
C. we can derive the quantity supplied of the firm at different prices from its marginal cost schedule.
D. the firm can make a profit when the marginal cost curve and the supply curve are equal.

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Economics Mock Exam Paper 1 (Set 10)
15. The diagram below shows the market for eggs in a country. Point E is the initial equilibrium point.

Price ($)
S1
D S0

S2

E
  A
C

D2

B D0

D1
0 Quantity

There is an outbreak of avian flu in the country and therefore a ban on importing eggs. At the same time,
the residents of the country prefer not to consume eggs. The new equilibrium point in the diagram
would be __________.
A. Point A
B. Point B
C. Point C
D. Point D

16. A reduction in the price of Good X will lead to a reduction in the firms’ total revenue. The demand for
Good X is __________.
A. elastic
B. inelastic
C. perfectly inelastic
D. inelastic or perfectly inelastic

17. Which of the following are the effects of an effective price floor on a good?
(1) An increase in the price of the good
(2) A decrease in the quantity transacted
(3) A decrease in consumer surplus
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

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Economics Mock Exam Paper 1 (Set 10)
18. The table below shows the market demand and supply schedule of a good.
Price ($) Quantity demanded (units) Quantity supplied (units)
5 80 0
6 60 20
7 40 40
8 20 60
9 0 80
Suppose a per-unit subsidy of $2 is provided to the consumers of the good. The new market price is
A. $5 B. $6 C. $7 D. $8

19. With reference to the table below, which shows the market demand and supply schedules of Good X.
Price ($) 80 70 60 50 40 30 20 10
Quantity demanded (units) 1 2 3 4 5 6 7 8
Quantity supplied (units) 7 6 5 4 3 2 1 0
If a per-unit subsidy of $20 is given to the production of Good X, the new market price is __________
and the new quantity transacted is __________ units.
A. $20 …… 7 C. $40 …… 5
B. $30 …… 6 D. $50 …… 4

20. Which of the following are the features of oligopoly?

(1) There are entry barriers in the market.
(2) There is no non-price competition.
(3) There is imperfect information.
A. (1) and (2) only C. (2) and (3) only
B. (1) and (3) only D. (1), (2) and (3)

21. If the market of influenza vaccine is perfectly competitive and the price of the vaccines is below the
equilibrium price, which of the following are correct?
(1) There is a deadweight loss.
(2) The marginal social benefit is larger than the marginal social cost.
(3) Underproduction of the vaccine exists in the market.
A. (1) and (2) only C. (2) and (3) only
B. (1) and (3) only D. (1), (2) and (3)

22. Which of the following government policies helps to equalise opportunities?

A. Raising the Old Age Living Allowance
B. Increasing the progressiveness of salaries tax
C. Raising the minimum wage rate
D. Providing more re-training programmes to workers
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Economics Mock Exam Paper 1 (Set 10)
23. The following table shows the data of an economy from Year 1 to Year 3.
Year Gini coefficient
1 0.29
2 0.31
3 0.33

Based on the above information, which of the following statements is correct?

A. Income distribution becomes more even.
B. Income distribution becomes more uneven.
C. The problem of poverty becomes more serious.
D. Society becomes richer as a whole.

Answer Questions 24 to 25 using the information below.

Components of GDP in 2014 $ million

Private consumption expenditure 150
Government consumption expenditure 110
Gross domestic fixed capital formation 90
Change in stocks 6
Domestic exports 110
Re-exports 50
Exports of services 30
Imports of goods 90
Imports of services 20
Indirect tax 6

24. The GDP at factor cost in 2014 was $__________ million.

A. 342
B. 410
C. 430
D. 436

25. Which additional information is needed to calculate the GNP of the economy in 2014?
A. Depreciation
B. Net factor income from abroad
C. Net investment
D. Direct taxes

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Economics Mock Exam Paper 1 (Set 10)
The table below shows the data of an economy in 2010 and 2013.
2010 2013
GDP deflator 100 105
Nominal GDP $920 million $977.5 million
Which of the following was correct from 2010 to 2013?
A. The inflation rate increased.
B. Both national income and the purchasing power of money increased.
C. The cost of living increased but the general living standard decreased.
D. Real GDP increased.

26. Unemployment
(1) can result in a loss in national output.
(2) tends to increase the financial burden of the taxpayers.
(3) exists when the supply of labour is greater than the demand for labour.
A. (1) and (2) only C. (2) and (3) only
B. (1) and (3) only D. (1), (2) and (3)

27. Which of the following are reasons why the Consumer Price Index may overstate the effect of inflation
on the cost of living?
(1) It measures the price changes of consumer goods only.
(2) It ignores changes in the quality of the goods.
(3) People may change their consumption patterns during inflation.
A. (1) and (2) only C. (2) and (3) only
B. (1) and (3) only D. (1), (2) and (3)

28. Which of the following is a possible reason for the change in the diagram?

Price level LRAS

SRAS1
SRAS0

Aggregate output
0

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Economics Mock Exam Paper 1 (Set 10)
A. A reduction in the quantity of resources
B. A temporary increase in factor prices
C. A reduction in the expected price level
D. A technology breakthrough that raises productivity

29. Which of the following will decrease the aggregate output in the short run?
A. An increase in savings rates
B. An increase in transfer payments
C. A reduction in imports
D. A reduction in nominal money demand

31. An inflationary gap could be eliminated by __________.

A. An increase in consumption
B. An increase in wage rates
C. An increase in fiscal deficit
D. An increase in business confidence

32. Which of the following is / are correct about Bitcoin (比特幣)?

(1) It is the most liquid asset.
(2) It is the medium of exchange in society.
(3) It is a store of value.
A. (3) only C. (2) and (3) only
B. (1) and (3) only D. (1), (2) and (3)

33. Nowadays, people do not use gold or silver as money. Instead they generally use coins and notes issued
by the government as money. Which of the following is NOT a reason for this?
A. notes and coins are more portable
B. notes and coins are more homogeneous
C. notes and coins have intrinsic value
D. the government can easily control the supply of notes and coins

34. The table shows the balance sheet of a banking system. Suppose the banks do not hold excess reserves.
Assets ($) Liabilities ($)
Reserves 500 Deposits 2,500
Loans 2,000
If the public deposits $200 cash in the bank, the maximum possible change in the money supply will be
equal to __________.

A. $200 B. $600 C. $800 D. $1,000

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Economics Mock Exam Paper 1 (Set 10)

35. If the nominal interest rate is 4% and the real interest rate is 6%., the expected inflation rate is
__________.

A. 4% B. 2% C. –4% D. –2%

36. The following diagram shows the data of an economy.

Growth rate of
GDP deflator (%)

0 Time

According to the above diagram, which of the following is correct?

A. There is deflation in the economy.
B. The purchasing power of money is decreasing.
C. The imported goods of the economy are becoming more expensive.
D. The economy is facing a recession.

37. Which of the following may offset the effect of a contractionary monetary policy on national income?
A. An improvement in payment technology
B. An increase in the risk of holding bonds
C. An increase in taxes
D. An increase in the oil price

38. Which of the following is a regressive tax in Hong Kong?

A. Capital gains tax
B. General sales tax
C. First registration tax
D. All of the above.

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Economics Mock Exam Paper 1 (Set 10)
39. If __________, the tax revenue of the Hong Kong government will increase.
A. The US economy recovers
B. The salaries tax rate is greatly increased
C. The interest rate increases
D. The Hong Kong dollar appreciates

Answer Questions 40 and 41 using information from the table below which shows the maximum output that
Countries A and B can produce with one unit of resources respectively. Assume that Countries A and B
consume only two goods, Good X and Good Y.

Good X Good Y
Country A 2 OR 6
Country B 4 OR 4

40. Which of the following is NOT a possible transportation cost enabling the two countries to trade with
each other?
A. 1X = 0.5Y C. 1X = 1.9Y
B. 1X = 1.5Y D. 1X = 2.5Y

41. If the terms of trade is 1X = 2.5Y, which of the following is correct?

A. Country A will gain 0.5Y per unit of export, while Country B will gain 1.5Y per unit of import.
B. Country A will gain 0.5Y per unit of import, while Country B will gain 1.5Y per unit of export.
C. Country A will gain 1.5Y per unit of export, while Country B will gain 0.5Y per unit of import.
D. Country A will gain 1.5Y per unit of import, while Country B will gain 0.5Y per unit of export.

Answer Questions 42 to 43 with reference to the diagram below which shows the domestic demand and
supply of Good X of a small economy. The world price of Good X is $10.

Price ($)

12
B
C D
10
E
D

0 Quantity
Q1
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Economics Mock Exam Paper 1 (Set 10)

42. Which of the following is correct when there is trade?

A. The country will gain from areas B, C and D.
B. The domestic price will be $10.
C. Areas C and D show the deadweight loss.
D. The equilibrium price will increase to $12 because there is a shortage at $10.

43. Suppose an ad valorem tariff is imposed on Good X and the tax rate is 20%. Which of the following is
correct?
A. The economy will keep importing Good X.
B. The economy will export Good X.
C. The total social surplus will decrease by the sizes of areas C and D.
D. The world price will increase by 20%.

44. The table below shows the balance of payments account of a country.
$ million
(A) Current Account Balance –400
(B) Capital Account Balance 20
(C) Financial Account Balance
(1) Non-reserve portion of the financial 230
account
(2) Net change in reserve assets X
BoP account balance Y

According to the above table, the value of X is $__________ million. The country has a balance of
payment __________.
A. 150 …… surplus
B. 150 …… deficit
C. 190 …… surplus
D. 190 …… deficit

45. Which of the following is correct if a country has a balance of payment surplus?
A. The country must also have a trade surplus.
B. The current account must also be in surplus.
C. There is an increase in the country’s official reserves.
D. There must be an error, because the overall balance of all accounts must be zero.

 END OF PAPER 1 

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