Joint School Mock Suggested Solution Modified by VIL PDF

JOINT SCHOOL ECONOMICS MOCK EXAMINATION
Suggested Solution
Paper 1
1. A 11. C 21. A 31. B 41. A
2. C 12. A 22. C 32. A 42. D
3. B 13. C 23. C 33. A 43. D
4. D 14. B 24. D 34. D 44. A
5. D 15. B 25. A 35. A 45. D
6. B 16. D 26. A 36. D
7. B 17. C 27. B 37. B
8. D 18. C 28. D 38. C
9. A 19. C 29. D* 39. B
10. A 20. B 30. C 40. C
*Edited from the original paper
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Suggested Solution
Paper 2
Section A (44 marks)
1. No. (1 mark)
The time cost of a person having food in the restaurant may be higher than the delivery fee he pays (1).
In this case, the full cost of ordering food on the food delivery platform will be lower (1).
2. The programme helps equalise opportunities (1) as students from poor families will not be deprived of
learning online due to financial difficulties. Receiving education can also raise their future income(1),
thus reducing income inequality over generations(1).
3. (a) Wilson would lose. (1 mark)

The unexpected inflation would lower the real value (purchasing power) of the principal and
interest received from the time deposit. (1 mark)
(b) Mary would lose. (1 mark)
The actual real rate of return on bonds would be lower than the expected real rate of return.
(2 marks)
4. (a) Conglomerate integration. (1 mark)

This is because the firm has expanded into totally different industries. (1 mark)
(b) Possible motives:
- to enjoy economies of scale
- to use resources more efficiently
- to take advantage of brand names
1@, max: 3 marks
- to diversify sources of income and spread risk
- to develop business in another industry with a better outlook
- Any reasonable answers
5. (a)
(1)
When the unemployed population and the labour force increased by the same percentage (2), the
unemployment rate will remain unchanged.
(b) Losses caused by unemployment:
- loss in output
- social and political unrest
1@, max: 2 marks
- loss of human capital
- any reasonable answers
6. Illustrate in the diagram:
- rightward shift of the demand curve (1 mark)
- leftward shift of the supply curve (1 mark)
- price increases (1 mark)
Price
S1
S0
P1
P0
D0 D1
0 Quantity
7. Verbal elaboration:
The central bank can raise the required reserve ratio (1) to reduce money supply (1), resulting in an
increase in the interest rate (1). Consumption/Investment expenditure decreases (1), leading to a
decrease in aggregate demand (1). The output level will fall back to Yf.
Illustrate in the diagram:
- leftward shift of the AD curve (1 mark)
- correct position of the new short run aggregate output Y1 (= Yf) (1 mark)
Price level
LRAS0
SRAS0
AD1 AD0
0 Output level
Y1 = Yf Y0
8. (a) In Country A, the opportunity cost of producing 1 unit of clothing is 4 units of rice. (1 mark)
In Country B, the opportunity cost of producing 1 unit of clothing is 5 units of rice. (1 mark)
Country A would specialise in producing clothing and export clothing as it has a lower opportunity
cost in producing clothing. (1 mark)
(b) Terms of trade: 1 unit of clothing = 4.5 units of rice (1)
Per unit gain from trade for Country A ＝4.5 units of rice－4 units of rice－0.1 units of rice (1)
＝0.4 units of rice (1)
Total gain from trade: = 0.4 units of rice × 6 = 2.4 units of rice (1)
9. Effect on aggregate output:
Lowering the income tax rate would raise people’s disposable income (1), resulting in increases in
consumption expenditure and aggregate demand (1). The output level would increase. (1)
Effect on fiscal balance:
Fiscal balance may deteriorate (1). If the decrease in tax revenue due to the decrease in the tax rate is
greater than the increase in tax revenue due to the increase in the tax base/taxable income (2),
government revenue will decrease.
OR
Fiscal balance may improve (1). If the decrease in tax revenue due to the decrease in the tax rate is
smaller than the increase in tax revenue due to the increase in the tax base/taxable income (2),
government revenue will increase.
Suggested Solution
Paper 2
Section B (60 marks)
10. (a) Verbal elaboration:

- Firms relocating the production plants back to Country A would raise the investment
expenditure of Country A. (1 mark)
- Aggregate demand would increase. (1 mark)
- The subsidy would lower the production cost of Country A firms. (1 mark)
- Short run aggregate supply would increase. (1 mark)
- If the increase in aggregate demand has a larger effect on the price level than the increase in
short run aggregate supply, the price level of Country A will increase. (2 marks)
- rightward shift of the AD curve (1 mark)
- rightward shift of the SRAS curve (1 mark)
- final equilibrium with a higher price level (1 mark)
Price level
SRAS0
SRAS1
P1
P0
AD
AD 1
0 Output level
0
(b) A higher transportation cost would lead to a reduction in exports of goods (1) of Country A. The
visible trade balance of Country A would decrease (1). This would reduce Country A’s current
account surplus (or enlarge its deficit).
(c) Yes. (1 mark)
Verbal elaboration:
When the government provides a per-unit subsidy to producers, the quantity transacted will increase and
the price will decrease.
As the output is higher than the efficient output level (1), marginal cost is higher than marginal benefit.
(1) Deadweight loss exists.
- downward shift of the supply curve (1 mark)
- price decreases and quantity transacted increases (1 mark)
- correct position of deadweight loss (1 mark)
Price
Deadweight loss S0
S1
P0
P1
D
0 Q0 Q1 Quantity
11. (a) Hong Kong Disneyland’s profit was larger than its loss. (1 mark)
(b) The operation of Hong Kong Disneyland would attract more tourists to visit Hong Kong. The tourists
would have additional spending in Hong Kong (1) (e.g. spending on hotel accommodation,
transportation and other attractions), but Hong Kong Disneyland does not receive compensation (1)
for such benefits. External benefit exists (1). Hong Kong Disneyland may thus involve positive
externality.
(c) division of labour/specialisation (1 mark)
Reasons:
- choosing the best people to do the job
- practice makes perfect
- saving time on training
- saving time on moving from one task to another
- stimulus to mechanisation
- any reasonable answers
(Mark the FIRST THREE points only, 1 mark each)
(d) Verbal elaboration:
If the demand for Hong Kong Disneyland services is elastic (1), the percentage decrease in the
ticket price would be lower than the percentage increase in the number of attendance (2). The total
ticket revenue would increase.
- correct positions of the gain and the loss in total ticket revenue (1 mark)
- gain in total ticket revenue > loss in total ticket revenue (1 mark)
Price
Gain in total revenue

Loss in total revenue
P0
P1
D
0 Quantity
Q0 Q1
(e) Argument for:

- The park has been sustaining losses in recent years, the government
may need to provide subsidy to the park, resulting in an increase in
government expenditure. The fiscal balance may thus decrease. 2@, max: 2 marks
- Operating the park by the government may be inefficient due to high
administrative costs or low sensitivity to market/price signals.
- Any reasonable answer
Argument against:
- Private enterprises aim at profit maximisation. If the park sustains
losses, it may be closed down. In this case, Hong Kong cannot be
benefited from the external benefit (e.g. extra consumption and
accommodation in Hong Kong) brought by the park. 2@, max: 2 marks
- With government backup, the park may get loans from banks more
easily or at a lower interest rate.
- Any reasonable answer
12. (a) Difference in human capital (1): workers who have received more education (1) have more human
capital and are more productive, they can thus earn higher wages. (2 marks)
(b) An increase in government expenditure on education will raise people’s education levels in the
future, raising the productive capacity (1) of Hong Kong. Long run aggregate supply (1) and
aggregate output will increase (1).
(c) As the quantity demanded of labour with different education levels is larger than the quantity
supplied, there will be a shortage (1) in the labour market. The wage rate will tend to increase. (1)
(d) Yes. (1 mark)
This is because it is derived from the current production (1) carried out by a resident producing
unit (1) in Hong Kong.
(e) Yes. (1 mark)
This is because it is refutable by fact. (1 mark)
(f) Marks award for effective communication (EC: max 2 marks)
Marks Performance
2  Arguments supported with the source/data and appropriate economic
theories
 Relevant materials presented
 Well-organised and coherent answers presented without repetition of
ideas
 Ideas clearly and fluently expressed with appropriate use of
language/words/terms/symbols
1  Arguments presented with some support of the source/data and economic
theories
 Some irrelevant materials presented
 Answers presented in a less organised way with some repetition of ideas
 A clear message conveyed with some inappropriate use of
language/words/terms/symbols
0  Arguments presented with no support of the source/data and economic
theories
 Materials unrelated to the gist of the question presented
 Inconsistent arguments presented
 Limited ideas expressed with inappropriate use of words/terms/symbols
The maximum marks for content are 12 marks. Answers may include the following:
Effects on aggregate output: (Max: 4 marks)
Proposal I
- Increasing subsidised university places will reduce the number of people entering the labour
market, labour supply will decrease. Short run aggregate supply will decrease, causing the
aggregate output to decrease. In the long run, the potential output level will increase due to the
improvement in the quality of labour. OR
- Increasing subsidised university places will raise people’s income in the future. There will be
higher private consumption expenditure. Aggregate demand will increase, leading to an
increase in aggregate output in the short run.
Proposal II
- When more specialists come to Hong Kong through the scheme, labour supply and average
labour productivity of Hong Kong will increase, raising the productive capacity of Hong Kong.
The output level will increase in both the short run and the long run. OR
- Increasing the quota of the Quality Migrant Admission Scheme can better meet the needs of
specific industries than increasing subsidised university places and is more effective in
attracting investment. This will help raise investment expenditure. Aggregate demand will
increase, leading to an increase in aggregate output in the short run.
Effects on wage rate of local labour: (Max: 4 marks)

Proposal I
- Increasing subsidised university places will reduce the number of people entering the labour
market, labour supply will decrease. The wage rate of local labour will increase.
Proposal II
- Local labour and foreign labour are substitutes. More foreign labour working in Hong Kong
through the scheme will lower the wage rate of local labour.
Effects on government expenditure and/or revenue: (Max: 4 marks)

Proposal I
- Increasing subsidised university places will involve extra government expenditure.
Government expenditure on education will further increase, resulting in a decrease in the fiscal
balance. Increasing the quota of the Quality Migrant Admission Scheme will involve less
expenditure. OR
- Increasing subsidised university places will raise people’s income in the future, resulting in an
increase in the salaries tax revenue of the government.
Proposal II
- Increasing the quota of the Quality Migrant Admission Scheme will increase the number of
specialists working in Hong Kong. Their income are usually higher, the salaries tax revenue of
the government will thus increase.
Effect on aggregate output, wage rate and government expenditure (Max 10 marks)
Effects on other economic variable(s): (Max: 5 marks)

Effects on the unemployment rate (1)
Proposal I
- When some unemployed population chooses to pursue further education, they are no longer in
the labour force. The unemployment rate will decrease. (2)
Proposal II
- When the specialists come to Hong Kong through the scheme, they may not be able to find a
job, resulting in an increase in unemployed population. The unemployment rate will increase.
(2)
EC Mark: Content mark: 9 – 12 EC: 2

Content mark: 5 – 8 EC: 1
Content mark: 0 – 4 EC: 0
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JOINT SCHOOL ECONOMICS MOCK EXAMINATION

1. A 11. C 21. A 31. B 41. A

2. C 12. A 22. C 32. A 42. D

3. B 13. C 23. C 33. A 43. D

4. D 14. B 24. D 34. D 44. A

5. D 15. B 25. A 35. A 45. D

6. B 16. D 26. A 36. D

7. B 17. C 27. B 37. B

8. D 18. C 28. D 38. C

9. A 19. C 29. D* 39. B

10. A 20. B 30. C 40. C

*Edited from the original paper

Section A (44 marks)

3. (a) Wilson would lose. (1 mark)

4. (a) Conglomerate integration. (1 mark)

Section B (60 marks)

10. (a) Verbal elaboration:

Gain in total revenue

(e) Argument for:

Effects on wage rate of local labour: (Max: 4 marks)

Effects on government expenditure and/or revenue: (Max: 4 marks)

Effects on other economic variable(s): (Max: 5 marks)

EC Mark: Content mark: 9 – 12 EC: 2

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