Paper 1 Introduction to Commerce

Multiple choice

1. Direct exchange of one product for another is known as ____________.

A. production
B. barter
C. shopping
D. specialisation

2. Which one of the following is NOT a characteristic of money?

A. Durable
B. Plentiful
C. Divisible
D. Portable

3. Which of the following occupations are examples of tertiary production?

(1) Hairstylist
(2) Fisherman
(3) Nurse
(4) Telephonist
A. (1) & (2) only
B. (3) & (4) only
C. (2) & (4) only
D. (1), (3) & (4) only

4. Which one of the following is NOT a type of secondary production?

A. Construction industries
B. Quarrying
C. Electricity and gas industries
D. Manufacturing industries

5. Which of the following are advantages of specialisation?

(1) Easier to supervise the production process
(2) Skill improvement
(3) Workers learn faster
(4) High job satisfaction
A. (1) & (2) only
B. (2) & (4) only
C. (1), (2) & (3) only
D. (2), (3) & (4) only

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6. Which of the following are forms of specialisation?
(1) Division of labour
(2) Computerisation
(3) Specialisation of firms
(4) Regional specialisation
A. (1) & (3) only
B. (1), (3) & (4) only
C. (2), (3) & (4) only
D. (1), (2), (3) & (4)

7. Which one of the following was NOT used as money in the past?
A. Cowrie shells
B. Copper axes
C. Cheques
D. Silver

8. The relationship in which we rely on other people, businesses and countries and
they in turn rely on us is called ____________.
A. mass production
B. interdependence
C. barter
D. double coincidence of wants

9. Which of the following are advantages of localisation?

(1) Faster supplies of raw materials
(2) Comfortable working environment
(3) More specialised workers
(4) Cleaner environment
A. (1) & (3) only
B. (1) & (4) only
C. (1), (2) & (4) only
D. (2), (3) & (4) only

10. The importance of the sector(s) has/have increased in Hong Kong

over the past 10 years.
A. primary
B. secondary
C. tertiary
D. secondary and tertiary

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11. Which of the following are examples of aids to trade?
(1) Fishing
(2) Insurance
(3) Advertising
(4) Construction
A. (1) & (4) only
B. (2) & (3) only
C. (3) & (4) only
D. (1), (2) & (3) only

12. Which of the following people provide social services?

(1) Domestic servants
(2) Insurance agents
(3) Teachers
(4) Doctors
A. (1) & (2) only
B. (1) & (3) only
C. (2) & (4) only
D. (3) & (4) only

13. Hong Kong’s commercial success can be attributed to its ______________.

(1) free trade policy
(2) hardworking labour force
(3) adequate supply of farmland
(4) development of the Guangdong area
A. (1) & (3) only
B. (1) & (4) only
C. (3) & (4) only
D. (1), (2) & (4) only

14. Which one of the following is NOT an advantage of electronic commerce?

A. Consumers can shop any time from homes.
B. Production costs are lowered.
C. Goods can be checked before purchase.
D. A wider range of products are available for sale.

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15. Which of the following are important effects of commerce?
(1) Raises the standard of living.
(2) Increases labour productivity.
(3) Helps in the distribution of goods and services.
(4) Slows down economic growth.
A. (1) & (2) only
B. (2) & (3) only
C. (1), (2) & (3) only
D. (1), (2), (3) & (4)

16. Which of the following are perishable goods that can cause problems in barter
trade?
(1) Vegetables
(2) Milk
(3) Desks
A. (1) & (2) only
B. (1) & (3) only
C. (2) & (3) only
D. (1), (2) & (3) only

17. Which of the following have been used as a medium of exchange in history?
(1) Shells
(2) Salt
(3) Wheat
A. (1) & (2) only
B. (1) & (3) only
C. (2) & (3) only
D. (1), (2) & (3)

18. Which of the following is NOT an example of division of labour?

A. Different people are employed as cashiers, cleaners and waiters in a
restaurant.
B. Mr Cheung, a carpenter, cuts wood in the morning, makes a chair in the
afternoon, and paints the chair in the evening.
C. John buys different kinds of fruit, Mary washes them, and Peter peels them.
D. In a garment factory, A designs the clothes, B cuts the pattern and C irons the
clothes.

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19. Which of the following are examples of production?
(1) Teachers teaching in a school.
(2) A football player playing cards with his friends.
(3) Singers singing in a concert.
A. (1) & (2) only
B. (1) & (3) only
C. (2) & (3) only
D. (1), (2) & (3)

20. Which of the following are aids to trade?

(1) Publishing
(2) Insurance
(3) Transport
A. (1) & (2) only
B. (1) & (3) only
C. (2) & (3) only
D. (1), (2) & (3)

21. Look at the table below showing the share of output for different economic
sectors in four different regions in 2001. Which place is like Hong Kong?

Output (in HK $million)

Economic Activity Region
A B C D
Primary Production 10,000 200 1,000 800
Secondary Production 8,800 6,200 15,400 1,200
Tertiary Production 16,500 28,000 13,200 1,200

22. Which of the following factors favour the development of commerce in Hong
Kong?
(1) Local housing policy
(2) The absence of foreign exchange controls
(3) The development of the Guangdong area
A. (1) & (2) only
B. (1) & (3) only
C. (2) & (3) only
D. (1), (2) & (3)

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23.Which of the following qualities should money possess in order to be an effective
medium of exchange?
(1) Portability
(2) Divisibility
(3) Productivity
(4) Durability
A. (1), (2) & (3) only
B. (1), (2) & (4) only
C. (1), (3) & (4) only
D. (2), (3) & (4) only

24. Which of the following are ways in which Hong Kong has helped to develop the
economy of the mainland of China?
(1) Providing excellent port and transport facilities.
(2) Providing excellent banking and financial facilities.
(3) Providing cheap labour.
A. (1) & (2) only
B. (1) & (3) only
C. (2) & (3) only
D. (1), (2) & (3)

25. _________ is the process of producing goods and providing services.

A. Direct exchange
B. Barter
C. Production
D. Specialisation

26. Because of increasing _________, we rely upon others to provide most of the
things we need.
A. production
B. specialisation
C. localisation of production
D. exchange

27. Insurance, transport and advertising are examples of _________ which help in the
distribution process.
A. primary production
B. specialisation
C. trade
D. aids to trade

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Short questions

1. Identify and explain which type of production does each of the following is
involved in:
(a) a secretary; and
(b) a computer-production technician. (4
marks)

2. What is meant by division of labour? Give three reasons why it can increase the
efficiency of workers. (8
marks)

3. What is money? How can money solve the problem of double coincidence of
wants? (6
marks)

4. What is tertiary production? Explain three main types of services provided by

tertiary producers and include an example of each. (8
marks)

5. What is commerce? State four reasons for the rapid development of Hong Kong
as a commercial centre. (10 marks)

6. Use an example to illustrate interdependence as a disadvantage of specialisation.

(3
marks)

7. Name the type of production each of the following people engages in and describe
the role each plays in the commercial world. (6

marks)
(a) (b) (c)

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8. ‘Primary production is less and less important in Hong Kong.’ Do you agree?
Why? (5
marks)

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Structured questions

1. (a) What is specialisation? (2

marks)
(b) Explain the term ‘regional specialisation’ with an example. (4
marks)
(c) State three disadvantages of division of labour. (6
marks)
(d) Explain how specialisation made developments in automation and
computerisation possible. (4
marks)

2. Study the information below and answer the following questions.

Economic Number of workers

activity 1995 1997 1999 2001
Primary
491 418 353 179
production
Secondary
397,851 397,058 325,115 287,681
production
Tertiary
1,874,455 1,933,932 1,926,078 1,997,596
production
Employment of Hong Kong economic sectors, 1995-2001

(a) Give two examples of each type of production. (6

marks)
(b) Calculate the percentage change in the number of workers for each type of
production from 1995-2001. (6
marks)
(c) Describe the trend for each type of production from 1995-2001. (4
marks)
(d) Give two reasons to explain why commerce is so important to Hong Kong’s
economy. (4
marks)

3. (a) What is ‘direct production’? (2

marks)
(b) What were the main problems with the barter system? (10
marks)
(c) Describe how money came into use. (4
marks)
(d) Give four characteristics of money which make it an important part of

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 commerce. (8
marks)

4. (a) What is ‘localisation of production’? (2

marks)
(b) Give one example of localisation in Hong Kong and one from anywhere else
in the world. (4
marks)
(c) Give three disadvantages of localisation. (6
marks)
(d) Using Cyberport (數碼港) as an example, explain what advantages may result
from localisation of production. (4
marks)
5. In Country A, the government has classified its production activities into 10
sectors. The following table shows the share of output from these 10 sectors for
2001:
Sector Share of output (%)
(1) Agriculture and fishing 10
(2) Construction 15
(3) Community, social and personal activities 6
(4) Electricity, gas and water 9
(5) Financing, insurance, real estate and business
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services
(6) Manufacturing 26
(7) Mining and quarrying 4
(8) Ownership of premises 3
(9) Transport, storage and communications 6
(10) Wholesale, retail and import/export trades,
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restuarants and hotels
(a) Group the 10 sectors into three types of production. (10
marks)
(b) Based on the above figures, which economic activity is the most important in
Country A in 2001? Why? (2
marks)

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News analysis

1.

Barter System in the Modern World

More than 100 people have participated in the Community-oriented Mutual

Economy Programme – the first experimental project in Hong Kong using the
barter system. In this system, people exchange goods and services by using a
local currency – coupons.

Ms Cheung, head of the project, said those who are unemployed and living in
poverty can obtain goods or services by offering skills to others, such as
cleaning and child care, and that this helps improve the quality of their lives
and promotes the recycling of goods.

Members of this project use coupons as currency in exchange for goods or

services. One hour of work can earn 60 points and coupons are in four
denominations, 5, 10 30 and 60 points. For instance, a housewife can earn 120
points after cleaning a house for two hours. She then can use coupons to pay
for services provided by others, such as tuition for her son.

However, Professor Lui, an economist, was critical of the system, saying that
it would break down in the long run when some members refused to honour
coupons. Also, the supply and demand of goods and services may not be
appropriately matched.

(7 December 2001)

(a) What is barter? (2

marks)
(b) What are the aims of the programme mentioned above? (4
marks)
(c) Instead of coins and banknotes, what do the members of the project use to
exchange goods and services? (2
marks)
(d) Briefly explain three qualities of money that the answer in (c) possesses.(6
marks)
(e) Explain the problems of this programme. (4
marks)

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2.

Hong Kong’s Global Business Ranking Falls

The Economist Intelligence Unit (EIU) ranked Singapore as ‘the best business
environment in Asia’ this year. It is expected that Singapore will be the most
business-friendly place in Asia from 2002 to 2006. Hong Kong slipped to
second place in Asia and its global ranking also fell from fifth to 11th.

According to the EIU study, four factors affected Hong Kong’s ranking are: the
degree of political autonomy being eroded by the mainland, worsening
economic conditions, government intervention in economic decisions and lack
of skilled labour.

Chief Secretary Donald Tsang said, ‘They may conduct their assessment based
on the views of the media or some individuals. The assessment may not reflect
the truth.’

(25 April 2002)

(a) What is Hong Kong’s new business ranking in Asia and the world according to
the EIU study? (2
marks)
(b) What factors affected Hong Kong’s ranking? (8
marks)
(c) Despite the stated factors in the answer in (b), what advantages do you think
Hong Kong still possesses to promote the development of commerce? (6
marks)
(d) How did the HKSAR Government respond to this study? (2
marks)

Case studies

1. Commercial activities

Gillian bought a woollen sweater for her sister at a chain store in Causeway Bay.
Gillian said that she had seen it advertised on television. The label on the sweater
showed that it was made of wool produced in New Zealand and manufactured in a
factory in the mainland of China.

(a) Explain the stages of production that the sweater passed through before it reached

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 Gillian’s sister. (6
marks)
(b) Explain what aids to trade helped bring the sweater to Gillian’s sister. (6
marks)

Answers to Paper 1

Multiple choice

1. B 6. B 11. B 16. A 21. B 26. B

2. B 7. C 12. D 17. D 22. C 27. D
3. D 8. B 13. D 18. B 23. B
4. B 9. A 14. C 19. B 24. A
5. C 10.C 15. C 20. C 25. C

Short questions

1. (a) Tertiary production. Because he/she provides secretarial services. (2

marks)
(b) Secondary production. Because he/she turns raw materials (e.g. chips, printed
circuit boards) into finished products (computers). (2
marks)

2. Division of labour is the breaking down of tasks so that each worker performs one
task. (2
marks)
Reasons (each 2 marks):
 More efficient because workers learn faster and become more skilled.
 Workers can specialise in tasks which they perform well.
 Time can be saved by not having to move between jobs.

3. Money is anything which is generally accepted as a representation of value and

used as a medium of exchange.(2 marks)
The problem of double coincidence of wants is that people have to find someone
who is willing to provide them with the goods they want and also willing to take
the goods offered in return. (2
marks)
Since money is generally accepted as having value and can be used as a medium
of exchange, people can sell and buy whatever they want. They need not search
for people with which to exchange goods. The problem of double coincidence of
wants does not exist. (2
marks)

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4. Tertiary production is the provision of services. (2
marks)
Types of tertiary production:
 Personal services, e.g. domestic service, hairstyling, insurance, etc. (2
marks)
 Social services, e.g. medical service, education, police service, etc. (2
marks)
 Commercial services, e.g. banking, financing, advertising, trading, transport,
etc. (2
marks)

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5. Commerce refers to activities which link producers and consumers. (2 marks)
Reasons (briefly explain any four of the following, each 2 marks):
 Favourable location
 Free trade policy
 Stable government
 Hardworking labour force
 Good communications
 Well-developed transport facilities
 Development of the Guangdong area

6. Any correct example. (3

marks)
e.g. Firm A, which specialises in spraying paint on motorcars, must wait for Firm
B to finish assembling the cars. Its production schedule may be delayed if Firm B
cannot finish its job on time.

7. (a) Primary production. He provides food. (2

marks)
(b) Tertiary production. They provide travel services. (2
marks)
(c) Secondary production. She produces goods. (2
marks)

8. Yes. (1 mark)
Reasons:
 Hong Kong does not have enough natural resources. (2
marks)
 Hong Kong is an international trade and financial centre in which tertiary
production dominates. (2
marks)

Structured questions

1. (a) Specialisation means that workers, firms, countries or regions can concentrate
on a task that they can do best. (2
marks)

(b) Regional specialisation means a country or a region may specialise in

producing certain products. (2
marks)
e.g. Switzerland specialises in producing watches. / The USA specialises in producing computer products. / Malaysia

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specialises in producing rubber. (any one of the above or other reasonable example, 2 marks)

16
 (c) Disadvantages (any three of the following, each 2 marks):
 Workers may lose job satisfaction.
 Workers may lose interest in doing the same task.
 Products may be of poor quality.
 Skills may be lost because workers participate in only one small part of a
product.
 Delays in one production process cause delays in the whole production
line.

(d) Specialisation allows technology to develop machines or computers to do

many different jobs. Workers only have to operate or supervise the machines
or computers. The production process becomes automatic and computerised.
(4
marks)

2. (a) Primary production: fishing, farming, mining, quarrying, forestry (any two,
each 1 mark).
Secondary production: manufacturing, construction, provision of electricity,
water and gas (any two, each 1 mark).
Tertiary production: hairstyling, medical services, banking, communications
(any two, each 1 mark).

(b) Primary production: decrease by 63.5% (2

marks)
Secondary production: decrease by 27.7% (2
marks)
Tertiary production: increase by 6.6% (2
marks)

(c) There was growth in the tertiary sector, but a decline in the primary and
secondary sectors. (4
marks)

(d) Reasons (any two of the following, each 2 marks):

 Commerce helps facilitate the distribution of goods and services.
 Commerce helps raise people’s standard of living.
 Commerce helps raise labour productivity and promotes economic
development.

3. (a) Direct production means people produce everything they need for themselves.
(2 marks)
(b) Problems of the barter system (each 2 marks):
 Problem of double coincidence of wants
 No storage of value

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  Some goods are not divisible
 No measure of value
Some goods are not portable

(c) Since the problems of barter became more serious, people started to use
money, such as rice, wheat, and coconuts, as a medium of exchange in order
to sell their goods and buy whatever they needed. (4
marks)

(d) Characteristics of money (any four of the following, each 2 marks):

 Durable
 Divisible
 Portable
 Scarce
 Recognisable
 Easily stored

4. (a) Localisation of production means that the production of one kind of good or
service is concentrated in an area. (2
marks)

(b) Example in Hong Kong:

(any one of the following or other correct answer, 2 marks)
 Dried seafood wholesaling in Sheung Wan
 Printing firms and publishing houses in Quarry Bay
 Cloth and garment wholesaling in Sham Shui Po and Cheung Sha Wan
Example in other countries/regions:
(any one of the following or other correct answer, 2 marks)
 Hi-tech companies in Silicon Valley
 Light industries in Zhujiang Delta/South China
 Car manufacturing in the Midwestern region in the USA

(c) Disadvantages of localisation (briefly explain any three of the following, each
2 marks)
 Environmental problems may occur.
 Localisation may lead to overcrowding.
 Unemployment may occur in an area.
 A country may become too dependent on one area.

(d) Advantages of localisation (any two of the following, each 2marks):

 Better support services – the Cyberport will provide the infrastructure,
such as a database centre and multimedia laboratories.
 Better supplies of raw materials at cheaper prices and with prompt
delivery.
 Skilled labour and specialists will be attracted.

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 Development of a good reputation as the IT firms are concentrated in that
area.

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5. (a) Primary production (each 1 mark):
 Agriculture and fishing
 Mining and quarrying
Secondary production (each 1 mark):
 Construction
 Electricity, gas and water
 Manufacturing
Tertiary production (each 1 mark):
 Community, social and personal services
 Financing, insurance, real estate and business services
 Ownership of premises
 Transport, storage and communications
 Wholesale, retail and import/export trades, restaurants and hotels

(b) Secondary production. (2

marks)
Because it makes up the largest share of the output in Country A. (2
marks)

News analysis

1. (a) Barter is the direct exchange of one product for another. (2 marks)

(b) It aims to help improve the quality of life for the unemployed and the poor, as
well as promote the recycling of goods. (2
marks)

(c) They use coupons. (2

marks)

(d) Qualities (each 2 marks):

 Divisible – coupons can be divided into smaller units to make large or
small payments.
 Portable – coupons can be carried around easily.
 Scarce – the supply of coupons is limited.

(e) • If people refused to honour coupons, the currency would be devalued.

(2
marks)
• The demand and supply of goods and services may not be appropriately
matched. (2
marks)

2. (a) Hong Kong ranked second in Asia while its global ranking was 11th. (2

20
marks)

(b) Factors affecting Hong Kong’s ranking (2 marks each):

 Erosion of political autonomy from the mainland
 Worsening economic conditions
 Government intervention
 Lack of skilled labour
(c) Factors (briefly explain any three of the following or other correct answers,
each 2 marks):
 Policy of free trade
 Good communications
 Well-developed transport network
 Development of the Guangdong area

(d) The HKSAR Government did not agree with the study. It thinks the EIU may
have conducted its study based on the views of the media or some individuals.
(2
marks)

Case studies

1. (a) Primary production takes place when wool is sheared from lambs. (2
marks)
Secondary production takes place when a sweater is made from the wool.
(2
marks)
Tertiary production takes place when the materials and the finished products
are transported. Also, the service of buying and selling is provided in the
chain store. (2
marks)

(b) Aids to trade (any two of the following, each 2 marks):

 Transport – moves the wool and the finished products to where they are
needed.
 Banking and finance – the factory owners and the chain store owners need
capital.
 Insurance – provides compensation for risks involved in the transportation
of the sweaters.
 Advertising – promotes sales of the sweaters.
 Communication – helps traders to exchange information and maintains
contact with one another.
 Warehousing – provides storage services for the sweaters until needed.

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