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2006-07 First Term Examination – F. 5 Economics
2006-07First Term Examination – F. 5 Economics(Suggested Answers)
Total: 90 marks
Section A(38 marks for contents and 2 marks for effective communication; total of 40 marks)
Mark(s)1. / (a.) / No.
-scarcity is a situation where the availability of resources is insufficient to satisfy all wants.
-although Mr. Lee is very rich, he may still have some wants, such as better health or love from others, cannot be satisfied by his wealth. / 1
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(b.) / No.
-opportunity cost is the highest-value option forgone.
-although Mr. Lee can travel any place he wants, as long as he needs to give-up any other option, such as going to other places or doing other things, in order to go visit Canada in the coming summer holidays, his cost to Canada is not zero. / 1
1
1
2. / Labour (units) / Total output of labour (units) / Marginal product (units) / 2
3
4
5
6
7
8 / 30
100
180
250
310
360 / --
70
80
70
60
50
The law of diminishing marginal returns states that when there is a variable factor added to a fixed amount of fixed factor continuously, the marginal product will eventually decrease, holding all other factors (including technology) constant.
Yes, the above data has illustrated the law of diminishing marginal returns
as the marginal product decrease when the 6th unit of labour has been employed. / 2
1
1
3. / Conglomerate expansion because
movie production and hotel business are two different lines of production.
OR
Lateral expansion because
the products are related but not competitive. / 1+1
Possible motives of conglomerate expansion or lateral expansion:
-product diversification to spread risk
-making use of brand name to sell another product / promoting goodwill
-more flexible use of resources
-to benefit from economies of scale
-any other relevant point
[Mark the FIRST TWO points only.] / 1@, max 2
4. / (a.) / $(60+55-50) - $2.5
= $62.5 million / 1
2
(b.) / $(70-50) + $(60+55-70)
= $65 million / 1
2
5. / Diagram:
-demand curve shifts to the left
-indicate both equilibrium price and quantity decrease / 1
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Verbal Elaboration:
-the rumour will lead to a decrease in the demand for eggs from Mainland China.
-as a result, both equilibrium price and qauntity will decrease / 1
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6. / (a.) / The law of demand states that within a period of time, an increase in price of a certain good will lead to a decrease in its quantity demand or vice versa, ceteris paribus. / 2
(b.) / As the government raises the fine for buying pirate DVDs in Hong Kong, the price (or the cost) of buying pirate DVDs also increases.
According to the law of demand, when the price of buying pirate DVDs increases, its quantity demanded will decreases (i.e. less people buying pirate DVDs), holding all other factors constant. / 2
7. / (a.) / Oligopoly because
there are a few dominant sellers, such as TVB, TVB or Cable TV, in the market. / 1
1
(b.) / TWO characteristics of oligopoly are:
-a few dominant sellers dominate the market
-firms produce similar but differentiated products / heterogeneous products
-restricted entry due to government regulation or hugh capital / technological requirement.
-imperfect market information
-interdependence amongs sellers
-any other relevant point
[Mark the FIRST TWO points only.] / 1@, max 2
8. / Peter has higher occuptional mobility because
his cost of changing job is lower than Peter.
John has higher geographical mobility because
the transportation is more convenient and less costly for John. / 1
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Section B(50 marks)
Mark(s)9. / (a.) / As both private housing and housing under the Home Ownership Scheme are substitutes, the demand for private housing nearby Ngau Tau Kok will decreases.
Hence, the equilibrium price and quantity will both decrease.
Diagram:
-demand curve shifts to the left
-decrease in both equilbrium price and quantity / 1
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1
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(b.) / TWO reasons are:
-the HMO housings at Ngau Tau Kok were not built in the fiscal year of 2006-07
-some of the materials used in building the HMO housing were imports from other countries.
-any other relevant point
[Mark the FIRST TWO points only.] / 2@; max 4
(c.) / The interior designer belongs to teritary production as he/she provides services to the consumers.
The furniture manufacturer belongs to secondary production as it turns raw materials into semi-finished or finished goods. / 1+1
1+1
(d.) / TWO waygs to improve labour productivity are:
-provide better working environment
-provide more rewards and benefits to employees
-use of divisioin of labour
-provide training course to employees
-use of machinery and more advanced technology in production
-any other relevant point
[Mark the FIRST TWO points only.] / 1@; max 2
Effective communication / Max 2
10. / (a.) / (i.) / France has the absolute aadvantage in producing clothing and handbags as it has higher productivity in producing these two goods. (i.e. it requires less labour input in order to produce the same amount of output.) / 1 + 1
(ii.) / No.
France’s opportunity cost of producing clothing is 2/4 = 0.5 units of handbags.
Germany’s opporutnity cost of producing clothin is 4/5 = 0.8 units of handbags.
Hence, France should specialize in producing clothing as its opportunity cost of producing clothing is lower than that of Germany.
[No mark will be given if there is no calculation shown in the answer.] / 1
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(iii.) / France’s gain from trade:
(0.6 – 0.5) x 30 = 3 units of handbags
Germany’s gain from trade:
(0.8 – 0.6) x 30 = 6 units of handbags / 2
2
10. / (a.) / (iv.) / No.
The total gain from trading one unit of clothing between France and Germany are: 0.8 – 0.6 = 0.2 units of handbags.
As the transportation cost is greater than the total gain from trade, there will be no mutually beneficial trade between the two countries. / 1
1
1
(b.) / TWO reasons for the change in form of business ownership are:
-more sources of capital
-wider scope of specialization
-risk-sharing amongs partners
-any other relevant point
[Mark the FIRST TWO points only.] / 2@; max4
11. / (a.) / GDP = $(469 + 62 + 285 – 15 + 1 345 + 203 – 1 424 – 137)billion
= $788 billion.
[No mark will be given if there is no calculation shown in the answer.]
Expenditure approach. / 1
1
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(b.) / Per capita GDP at constant price = $(788 billion x 100/98) / 6 million
= $134 013.60 / 1
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(c.) / TWO reasons to support Dr. Economics’ statement are:
-leisure raises standard of living but it is not counted inn the GDP
-the improve in quality of output is not couted in the GDP
-if there is a large part of a country’s product is for self-consumption, GDP will also underestimate the true standard of living.
-any other relevant point
[Mark the FIRST TWO points only.] / 2@; max 4
(d.) / The quota will lead to an increase in price but decrase in quantity transaction of Country X’s exports.
When the demand for Country X’s exports is inelastic,
the percentage increase in price is greater than the percentage decrease in quantity demanded such that the gain in total revenue from exports is greater than the loss.
Hence, the total exports of goods contributed to Country X’s GDP will increase.
Diagram:
-show the change in supply curve due to the imposition of quota
-indicat the gain and loss in total revenue earned from exports
-show the gain is greater than the loss. / 1
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Effective communication / 2