2013-DSE

ECON
PAPER 1
HONG KONG EXAMINATIONS AND ASSESSMENT AUTHORITY

HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION 2013

ECONOMICS PAPER 1

8.30 am - 9.30 am (1 hour)

INSTRUCTIONS

1. Read carefully the instructions on the Answer Sheet. After the announcement of the start of the
examination, you should first stick a barcode label and insert the information required in the spaces
provided. No extra time will be given for sticking on the barcode label after the'Time is up'
announcement.

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 marks can be completely erased with a clean rubber. You must mark the
answers clearly; otherwise you will lose marks if the answers cannot be captured.

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
3

2013-DSE-ECON口

http://dsepp.com
There are 40 questions in this paper. Choose the BEST answer for each question.

The Hong Kong government proposes to build new towns with residential flats and shopping
malls in the North District. However, there are concerns about the ratio of public housing to
private housing. Some people are also worried about the size of shopping malls, which may
mainly serve mainland tourists.

The above case 1s related to the question(s) in Economics.

A. "for whom to produce"

B. "what to produce" and "how to produce"
C. "what to produce" and "for whom to produce"
D. "how to produce" and "for whom to produce"

2. Jeremy is going to watch a tennis match in which Li Na (李娜），a Grand Slam (大滿貫） winner, will play.
Which of the following will increase the cost to Jeremy of watching the tennis match?

A. He is 30 minutes late for the match due to traffic congestion.

B. His view is blocked by the spectators in front of him.
C. Due to a rainstorm, the match is extended by an hour.
D. Li Na is injured and does not show up for the match.

3. The following table shows the cost-output relationship of a firm.

2-

4-
0一

5一

Outputs (units) 3
42

60
10

72

Total cost ($) 28 52

Based on the above table, we can conclude that

A. the firm enjoys the benefits of economies of scale.

B. the firm's optimal scale of production is 5 units of outputs.
C. the average variable cost is increasing.
D. the total fixed cost is $10.

4
Machines (units) Labour (units) Average Product (units)
2 3 30
2 4 40
2 5 50
2 6 55

The above table shows a situation in which

A. short run…the law of diminishing returns does not apply

B. short run…the law of diminishing returns applies
C. long run…economies of scale exists
D. long run ... diseconomies of scale exists

2013-DSE-ECON 1-2 4
http://dsepp.com
5. In order to increase the number of nurses for expanding medical services, the government has allocated
more resources to expand the nursing programme in universities. In this case, private hospitals will

A. enjoy internal economies ofscale.

B. suffer internal diseconomies ofscale.
C. enjoy external economies ofscale.
D. suffer external diseconomies ofscale.

6. The television broadcast ofEuropean football matches is

A. a public good ifcitizens can enjoy the broadcast ofmatches in public areas like restaurants and
Karaoke lounges.
B. a private good ifa local television broadcasting company has purchased the exclusive right to
broadcast in Hong Kong.
C. a free good because there is no cost in serving an additional viewer.
D. a producer good ifthe broadcast is used to teach the children in a football training school.

7. Teachers m secondary schools are usually paid by time rate because

A. this can improve their work incentive.

B. they prefer a stable income.
C. most teachers are hardworking.
D. it is costly to measure their outputs.

8. A firm can ensure a steady supply of raw materials by engaging in while it can increase its
market share by engagmg m � � ．

A. backward integration ... horizontal integration

B. backward integration ... lateral integration
C. forward integration ... horizontal integration
D. forward integration ... lateral integration

9. Ifa partnership is turned into a private limited company,

(1) the company will become an independent legal entity.

(2) the company will be at a higher risk ofbeing taken over.
(3) the company will pay a higher profits tax rate.
(4) the number ofowners will mcrease.

A. (1) and (3) only

B. (1) and (4) only
C. (2) and (3) only
D. (2) and (4) only

2013-DSE-ECON 1-3 5
http://dsepp.com
10. Which of the following is assumed to be constant when the market demand curve ofa good is derived?

the mcome ofthe consumers

(2) the price ofthe good
(3) prices ofrelated goods
(4) preference of the consumers

A. (1) and (3) only

B. (2) and (3) only
C. (I), (2) and (4) only
D. (1), (3) and (4) only

11. Refer to the following demand-supply diagram showing the market of luxury watches in Hong Kong. The
initial equilibrium point is E。·
Luxury watches
Price S1

S2

D」
。

Quantity

Suppose the rental of shopping premises in Hong Kong rises sharply and the economy in the mainland
experiences a recession. The new equilibrium point will be
AB c D

El巳 丘 L

2013-DSE-ECON 1-4 6
http://dsepp.com
12. A drop in the price for good X will lead to a drop in the price of good Y if

(1) good X and good Y are substitutes.

(2) good X and good Y are complements.
(3) good X and good Y are in competitive supply
(4) good X and good Y are in joint supply

A. (1) and(3) only

B. (l)and(4)only
C. (2) and(3)only
D. (2)and(4)only

13. The following table shows the demand and supply schedule of good X.

Price($) 2 3 4 5 6 7 8

Quantity demanded(units) 90 80 70 60 50 40 30

Quantity supplied (units) 30 40 50 60 70 80 90

Suppose the government imposes a $2 per-unit sales tax on each unit of good X sold. The total sales
revenue net of tax is
8
$
l2
0O 0 O
AB c D

o
＄2
8
$3
0
＄

14. Refer to the following demand-supply diagram:

s

Price

P 1 ,--------------

P 2 •--------------

D
。

Quantity
Q1 Qz
If the government raises the price floor from P2 to P i , the total revenue received by the sellers

A. will rise.
B. will fall.
C. will remain unchanged.
D. may rise or fall, depending on the price elasticity of demand.

2013-DSE-ECON 1-5 7
http://dsepp.com
15. Suppose the government introduces an effective rent control which sets a maximum rental per square feet
the landlords can charge to any tenants. Which of the following statements is correct?

(1) There will be a shortage of rental units.

(2) The landlords will have less incentive to rent out their flats.
(3) The landlords will spend less on maintenance of the rental flats.

A. (!) and (2) only

B. (!) and (3) only
C. (2) and (3) only
D. (!), (2) and (3)

16. Which of the following is INCONSISTENT with the law of demand?

A. When a higher per-unit import tariff is imposed, the quality of garment imports worsens
B. When a government reduces the unemployment benefit, the number of unemployed people
drops.
C. When political unrest in a country causes riots in its major cities, the number of tourists
visiting the country drops.
D. When people expect the price of the shares of a listed company to rise, the price of those
shares rises.

17. The market structure of the electric power industry in Hong Kong is

A. an oligopoly because there are two dominating companies in the market

B. an oligopoly because the pricing strategies of the companies are interdependent.
C. a monopoly because the companies can increase the price without losing customers.
D. a monopoly because there is only one electric company providing electricity in any district

18. Suppose the market equilibrium output level is greater than the efficient output level. It implies that

A. total social surplus will increase if output is reduced towards the efficient output level.
B. at the equilibrium output level, marginal benefit is greater than marginal cost.
C. the sum of consumer surplus and producer surplus is maximized as the market output level
satisfies the equilibrium condition.
D. government intervention is necessary to reduce output as there is over-production.

2013-DSE-ECON 1--6 8
http://dsepp.com
19. Refer to the following demand-supply diagram ofa good with the government setting a quota at Q 1 .
Price
Si
S 。

。
。

D
Quantity
01
Which ofthe following will be the result ofa reduction in quota on the good?

(I) The total expenditure on the good may increase or decrease

(2) The consumer surplus will decrease.
(3) The total social surplus may increase or decrease.

A. (1) only
B. (1) and (2) only
C. (2) and (3) only
D. (1), (2) and (3)

20. A beekeeper keeps the bees for their honey. The bee-keeping benefits the farmers in the orchard nearby
because the bees help pollinate the fruits in the orchard. Which ofthe following statements about this case
is correct?

A. There will be a divergence between private and social benefits and the honey is
over-produced.
B. The beekeeper should be subsidized by the government to improve economic efficiency.
C. Ifthe value ofhoney is higher than the value offruits, there is no need for the government to
intervene to correct the externality.
D. There will be no divergence between private and social benefits ifthe orchard nearby is owned
by the beekeeper.

2013-DSE-ECON I 刁 9
http://dsepp.com
21. Which of the following items is NOT included in the calculation of Hong Kong's net factor income from
abroad for the current year?

A. the income received by a Japanese teacher who worked in a language school in Hong Kong for
one year
8. rental income earned from real estate holdings in Canada owned by a Hong Kong resident
C. salary received by an Indian consultant who worked for the Hong Kong Airport Authority for
three months
D. dividends earned from shares in Hong Kong held by a US resident

22. Consider the following Gross Domestic Product (GDP) data about a country.

Components $ million
GDP at market price 200
Private consumption expenditure 120
Gross domestic fixed capital formation 40
Changes in inventories 10
Total exports of goods 80
Domestic exports of goods 70
Imports of goods 60
Exports of services 20
Imports of services 30
Net income from abroad 25
Depreciation 35
Indirect business tax 28
Subsidies 18

The govemment consumpt10n expenditure for that year 1s $ million.

0
23
AB c D

04
050

23. The aggregate demand curve will shift to the right if

A. there is a fall in the price level.

B. there is an improvement in technology.
C. the government reduces the import tariff.
D. the government reduces the salaries tax rate.

2013-DSE-ECON 1-8 10
http://dsepp.com
24. The diagram below shows the aggregate demand (AD) curve, the short run aggregate supply (SRAS) curve
and the long run aggregate supply (LRAS) curve of an economy

Price level LRAS

SRAS

AD
。

Output

Suppose initially the economy operates at E。. There is a/an and can help restore
the long run equilibrium.

A. inflationary (output) gap…a rise in transfer payments to the poor

B. inflationary (output) gap ... a rise in the discount rate
C. deflationary (output) gap ... a rise in transfer payments to the poor
D. deflationary (output) gap ... a rise in the discount rate

25. Which of the following is included in the money 叩pply M2?

(1) legal tender.held by licensed banks

(2) demand deposits with licensed banks
(3) time deposits with restricted licence banks
(4) negotiable certificates of deposit issued by licensed banks held by the non-bank public

A. (2) and (3) only

B. (2) and (4) only
C. (]), (2) and (4) only
D. (1), (3) and (4) only

2013-DSE-ECON 1-9 11

http://dsepp.com
26. Initially, a banking system has an excess reserve of $160 million and the public holds $200 million cash.
The balance sheet of the banking system is as follows:

Assets ($million) Liabilities ($million)

Reserves 400 Deposits I 200
Loans 800
I

Suppose $100 million is withdrawn from the banking system and held as cash by the public. What will the
money supply be if the banks lend out all excess reserves?

A. $1 500 million
B. $1 700 million
C. $1 800 million
D. $2 300 million

27. Refer to the following diagram.

Nominal interest rate

D2
。

Quantity of money

Which of the following will cause the money demand curve to shift from D 1 to D2 ?

A. a fall in the nominal interest rate

B. a rise in national income
C. more widespread use of electronic money
D. an open market purchase of bonds by the central bank

28. An expansionary monetary policy is adopted in China when

(I) the Ministry of Finance (財政部） provides cash subsidies to agricultural workers.
(2) the People's Bank of China (中國人民銀行） reduces the requfred reserve ratio of all commercial
banks.
(3) the Bank of China lowers its lending rate to small and medium-sized enterprises.

A. · (1) only
B. (2) only
C. (3) only
D. (1), (2) and (3)

2013-DSE-ECON 1-10 12
http://dsepp.com
29. Suppose the government greatly increases the tax allowance on continuing education. Which of the
following can best explain the effect of the above change on the price and output levels?

A. B.
Price level Price.level
LRAS1 LRAS2 LRAS2 LRAS1
｀

。
。

Output Output

C. D.
Price level Price level
LRAS1 LRAS2
SRAS1
SRAS2 SRAS1
｀ SRAS2
。

AD1
。

AD
Output Output

.
30. If there 1s a decrease in the desire to consume, the net exports of an economy will and the
amount of money held for transaction purposes will .

A. decrease . .. decrease
B. decrease . . . remam constant
C. increase ... increase
D. increase . . . decrease

31. Initially an economy operates at the full-employment equilibrium and the government expenditure equals
its tax revenue. Which of the following will result in a coexistence of deflationary (output) gap and budget
deficit?

A. a reduction in taxes
B. a reduction in money supply
C. a reduction in government expenditure
D. a reduction in desire to import

2013-DSE-ECON I-II 13
http://dsepp.com
32. The real output of an economy grows at a lower rate than the money supply. According to the quantity
theory ofmoney, we can conclude that

(1) the price level is increasing.

(2) the unemployment rate is decreasing.
(3) the velocity ofcirculation ofmoney is decreasing.
(4) the nominal output is increasing.

A. (1) and (2) only

B. (1) and (4) only
C. (2) and (3) only
D. (3) and (4) only

33. The following phenomena are observed in an economy:

(1) The unemployment rate is increasing.

(2) The inflation rate is no longer rising but falling instead.
(3) The inventories ofproducers are accumulating.
(4) The forecast ofeconomic growth is revised downward.

The economy is in the phase of a business cycle.

A. recess10n
B. trough
C. recovery
D. peak

34. Which of the following people will benefit from unanticipated inflation?

A. A loan shark who lends out a sum ofmoney at a floating interest rate
B. A manager who receives a fixed salary with the period ofa two-year contract
C. A flat-owner who repays a fixed-rate mortgage loan
D. A retired teacher who receives dividends from various listed companies

35.
In July 2009, the government introduced an environmental levy of 50 cents on each plastic
shopping bag at the retail level, with the first phase covering chain or large supermarkets,
convenience stores and personal health and beauty product stores. Small shops are exempted in
the first phase. Customers can pay the levy, with the original amount ofpurchase ofgoods, by
credit card, Easy Pay System (EPS) or cash.

The collection of the above environmental levy is LEAST in line with the principle oftaxation
put forward by Adam Smith.

A. equality
B. economy
C. convemence
D. certainty

2013-DSE-ECON 1-12 14

http://dsepp.com
36. The following diagram shows the change in the salaries tax structure of an economy

Tax rate(%)

New tax structure

Old tax structure

。 Income($)

Compared to the old salaries tax structure, the new tax structure

A. has a smaller personal allowance.

B. has a lower standard tax rate.
C. will narrow the income gap between the rich and the poor.
D. will widen the tax base.

37.
imports is —
A country's currency appreciates against its trading partners'currencies. If the country's demand for
, the appreciat10n of its currency will lead to
tenns of domestic currency).
in the total import value(in

A. umtanly elastic ... a rise

B. inelastic ... a nse
C. elastic ... a fall
D. inelastic ... a fall

2013-DSE-ECON 1-13 15

http://dsepp.com
Answer Questions 38 and 39 by referring to the following information.

Before trade, the output ofThailand and Japan with all their resources evenly allocated between the production of
rice and computers is shown below:

Rice (units) Computers (units)

Thailand 15 AND 5
Japan 24 AND 12

38. Which ofthe following statements about the above case is correct?

(I) Japan has a comparative advantage in producing computers

(2) Japan has an absolute advantage m producmg computers.
(3) With complete specialization in the two countries, the total output of both rice and computers will
increase.

A. (1) only
B. (1) and (2) only
C. (2) and (3) only
D. (1), (2) and (3)

39. Suppose the terms oftrade is I unit ofcomputers = 2.4 units ofrice and the computer-exporting country has
to pay a transportation cost ofO .1 units ofrice for each unit of export. To export 5 units ofcomputers, the
net gam ofthe country 1s units ofrice.
12 2 3
5 5
AB c D

40. Which ofthe following statements about the linked exchange rate system ofHong Kong is correct?

(1) Hong Kong dollar banknotes are fully backed by Renminbi and the US dollar.
(2) The Hong Kong Monetary Authority holds a considerable amount of foreign exchange reserves.
(3) All note-issuing banks can exchange for US dollars at the linked rate with the Hong Kong Monetary
Authority.
(4) The exchange rate ofthe Hong Kong dollar to the US dollar in the foreign exchange market is fixed.

A. (1) and (2) only

B. (I) and (4) only
C. (2) and (3) only
D. (3) and (4) only

ENDOFPAPER

Sources of materials used in this paper will be acknowledged in the Examination Report and Question Papers
published by the Hong Kong Examinations and Assessment Authority at a later stage.

2013-DSE-ECON口4 16

http://dsepp.com