NLSI Lui Kwok Pat Fong

College ​ ​ ​ ​Name:_________________________
S.3 Economics First Term Examination
Reminder ​ ​ ​ ​ ​ ​ ​ ​ ​ ​Class:____________ ( )

1. What is economics?
− Economics concerns on how people use scarce resources to satisfy unlimited wants.

2. Define scarcity.
− Scarcity is the problem that arises when we want more than what we have.

3. Why does scarcity a problem? Explain.

− When a particular want has been satisfied, new wants will emerge. / People can never be
fully satisfied.
− Our limited resources are insufficient to satisfy our unlimited wants./ we want more than
what we have.

4. Scarcity is a relative concept. Do you agree? Explain.

− Regardless of the quantity of the resource, as long as its quantity available is smaller than
its quantity desired, scarcity exists.

5. Why do we make a choice?

− With scarcity, everybody has to make a choice what wants to satisfy and what wants to
give up.

6. Define opportunity cost.

− Opportunity cost is the highest-valued option forgone.

7. If there is no other option, will the cost exist?

− If there are no other options, the cost will be zero. Not an option will be forgone when
making a choice)

8. The opportunity of ( A decision ) is the value of ( Answer ).

9. As the value of the highest-valued option forgone ( Answer ) remains unchanged/

increases/decreases, the opportunity of ( A decision ) remains unchanged /
increases/decreases. [This will only increase/decrease the value of the chosen option.]

10. ~ From LAC Workbook page 14 Q2

Preference list of John:

1stchoice Taiwan
2ndchoice Japan
3rdchoice Australia

a. What is the opportunity of visiting Taiwan? Explain.

− The opportunity of visiting Taiwan is Japan because Japan is the highest-valued option
forgone.

b. When John has an accident in Taiwan, is there any change in the opportunity cost of
visiting Taiwan?
− NO (ü).The opportunity cost remains unchanged(ü). The accident lowers/decreases(ü)
the value of the chosen option (visiting Taiwan(ü)). So it does not affect the value of the
highest-valued option forgone (visiting Japan(ü)).

c. The Japanese government plans to give cash coupons to all visitors. Is there any change in
the opportunity cost of visiting Taiwan?
− Yes (ü).The Japanese government gives cash coupons and it will increase(ü) the value of
visiting Japan(ü) which is the highest-valued option forgone (ü), the opportunity cost of
visiting Taiwan will increase (ü).

d. There is an earthquake in Japan and all tours to Japan are cancelled. Is there any change
in the opportunity cost of visiting Taiwan?
− Yes (ü).The option of Japan tour does not exist ( ü). Australia becomes the highest-
valued option forgone( ü). The opportunity cost of visiting Taiwan will decrease( ( ü)
to the value of visiting Australia( ü).

e. When Australia becomes very hot, is there any change in the opportunity cost of visiting
Taiwan?
− No (ü).The opportunity cost of visiting Taiwan remains unchanged (ü) as the value of
rd
other options (e.g. 3 priority) decreases (ü). When Australia becomes very hot, the
value of Australia will decrease (ü). Since Japan is still the highest-valued option
forgone (ü), the opportunity cost of visiting Taiwan remains unchanged.

11. The full cost of (

A DECISION ) includes money cost ($ ) and non-money cost ( e.g.
the highest-income forgone )

~ From LAC Workbook page 16 Q5

E.g. The opportunity cost for watching a concert:

= $250 + $400 (the highest income forgone)
=$650
(the income from doing the part-time job( $80x3=$240) is not the highest income forgone.)

12. Cost of buying the stamp ¹ cost of keeping/owning the stamp

13. We do not count the cost paid in the past. We only count the options available at
present.
E.g. In 2013, the stamp cost $100. In 2014, its price becomes $500.

a. What is the opportunity cost of buying the stamp in 2013?

− The opportunity cost of buying the stamp is $100.

b. What is the opportunity cost of keeping/owning the stamp in 2014? Explain.

− The opportunity cost of keeping the stamp is the income forgone if it is sold to others at a
price of $500. The opportunity cost of keeping/owning the stamp in 2014 is $500.
Because we only count the options available at present or need not to count the cost
spent in the past.
14. A good is anything we desire. Sickness, air pollution are bads.

15. An economic good is something we prefer to have more of rather than less of.
Its quantity is insufficient to satisfy to all human wants for it.
Cost is involved in obtaining them.

E.g. Is freshwater a free good?

− No(ü). Freshwater is an economic good (ü) because we prefer to have more of it(ü). Its
quantity is insufficient to satisfy our wants(ü). Cost is involved in obtaining fresh
water(ü).

16. An economic good MAY be provided free-of-charge.

− E.g. Freshwater is free-of-charge because the hawker has paid the cost of obtaining
freshwater through paying the rent.
− E.g. Free newspaper is free-of-charge because the newspaper company has paid the cost of
producing it.
− E.g. Free education is free-of-charge because the society/government has paid the cost of
producing it.

17. A free good is something we prefer to have some of but not more of.
− No one is willing to pay the price for a free good because the quantity of the free good is
sufficient to satisfy our wants. A free good MUST be free-of-charge.

18. Whether a good is a free good or an economic good depends on the situation.
− Sands in a desert is a free good but sands in a children park is an economic good because
people prefer to have more of it and cost is involved in obtaining the sand in the park.

19. The three basic economic problems

(1) What to produce?
It is the choice of the types and quantities of goods and services to produce.

(2) How to produce?

It is the choice of production methods. It is about a combination of factors of
production and production methods.

(3) For whom to produce?

It is the choice about the distribution of goods and services. It is to decide who can
get the goods.

20. Four types of economic system /economy

− A traditional economy
− A market economy
− A planned economy (or command economy)
− Mixed economy has the features of traditional economy, planned economy and market
economy.

21. Three methods of tackling economic problems:

− Economic problems are solved by customs and traditions in a traditional economy.
− Resource allocation and distribution of goods are guided by government plans (and
commands) in a planned economy (or command economy).
− In contrast, these economic problems are guided by the market mechanism or the price
 system (OR price signals) in a market economy.

22. Private property rights

− With clearly defined private property rights, we can use a market mechanism to exchange
our goods and services. A full set of private property rights include:
● exclusive right to use the good;
● exclusive right to receive income from the use of the good; and
● the right to transfer the good.
− Most of the resources are owned by private individuals in a market economy. In contrast,
most of the resources are owned by the government/ state.

23. In a market economy, the basic function of the government is to define and protect
private property rights. The extent of government intervention is minimal. In contrast,
government intervention is common in a planned economy.

24. Scarcity implies competition

− In a one-man economy there is scarcity, but not competition.
− In a society of more than one man, scarcity implies competition. We have to compete for
scarce resources.
− Competition exists in every economic system.

25. There are TWO Form of competition

− People will get the goods and services if they are able to and willing to pay the market
price will compete for resources and goods they want. This is called price competition.
− People are often involved in non-price competition includes all forms of competition that
do not use the price mechanism. e.g. ‘first come, first served’, examination result and
drawing lots.
− E.g. Smartphone fans pay $6000 and queue up to buy the phones. This includes both price
competition (the marker price of $6000) and non-price competition.( first come, first
served).
− E.g. People queuing up for a free lunch box involve non-price competition (First come,
first served). There is no price competition (lunch box is free-of-charge).

26. Competition implies discrimination

− Competition leads to discrimination.
− In any forms of competition, competing rules are used to discriminate among those who
can get the resources and goods or those who cannot.
E.g. According to the ‘First come, first served’ principle, who will be the winners and
who will be the losers?
The ‘First come, first served’ principle favors those who have a lower cost of queuing,
such as retired, aged or unemployed peoples. This principle discriminates against
those who have higher costs of queuing, (high time cost) such as employed people
with higher income group (managers and professionals)

Exam Format:
Section A: 22 MC questions (22 marks)
Section B: 5 True/ False (5 marks)
Section C: 5 Classification of the three basic economic problems (5 marks)
Section D: Fill-in-the-blank of sentences (witht words suggestion) (10 marks)
Section E: Fill-in-the-blank of a flowchart of some economic concepts (without words
suggestion) (10 marks) [study all flow charts in the LAC booklet]
Section F: 6 Short questions (24 marks)
Section G: 2 Structured questions (24 marks)

Revision materials:
Chapter 1 and 2 of the textbook ; Chapter 1 and 2 of the LAC booklet
First term UT test paper
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S:\Economics\s3_econ\Exam reminder\20-21 1st term Exam reminder.docx