2011-12 DSE Econ 4th Ex.

Mock Paper 1

Name: __________________ Class: __________________

Class No.: ________________

MUNSANG COLLEGE 2011-12 Extra Mock Examination - Forth Form 6

ECONOMICS Question Paper for Paper 1

Time allowed for Paper 1 : 1 hour Total marks: 40 Total No of pages: 13 Use of calculators would be allowed in this examination. INSTRUCTIONS 1. Read carefully the instructions on the Answer Sheet. Write down all the information required in the spaces provided. 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 answers can be completely erased with a clean rubber. 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.

Section A (40 marks) There are 40 questions. Choose the BEST answer for each question. 1. The existence of scarcity in a society implies that (1) (2) (3) A. B. C. D. shortage exists. choices have to be made. competition for goods is inevitable. (1) only (1) and (3) only (2) and (3) only (1), (2) and (3)

2. John wants to take a course in his spare time. He is choosing between a computer course and a cooking course. Which of the following will cause his opportunity cost of choosing the cooking course to decrease? A. B. C. D. The course fee of the cooking course increases. The prospect of being a cook becomes worse. The price of teaching materials for the cooking course increases. Fewer computer application programmes are taught in the computer course.

3. Martin and Simon are friends. As Simon needs money to buy a new car, Martin lends him a sum of money and earns interest in return. Which of the following statement(s) is/are CORRECT? (1) (2) (3) A. B. C. D. Both Simon and Martin have positive time preference. Martin has negative time preference. The interest that Simon pays Martin must be in the form of cash. (1) only (2) only (1) and (3) only (2) and (3) only

4. Which of the following is a positive statement? A. B. C. D. The government should raise the unemployment benefit. Extending opening hour of a restaurant raises the cost of operation. When the scale of production increases, more workers should be employed to ease the burden of existing workers. Using machines to produce goods is the best way to minimise the production cost.

5. Which of the following statements about private property rights must be TRUE? (1) (2) (3) A. B. C. D. Private property rights do not exist and are meaningless in a one-man economy. Private property rights do not apply to individuals only. Specialisation in production can occur only if private property rights are well protected. (1) and (2) only (1) and (3) only (2) and (3) only (1), (2) and (3)
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6. Which of the following is NOT related to the basic economic problem of what to produce? A. B. C. D. the quantity of T-shirts a garment factory produces the types of workers a garment factory employs the types of T-shirts a garment factory produces the types of trousers a garment factory produces

7. Tommy, Louis and Jeff own a firm. The firm is a legal entity. Which of the following must be TRUE? A. B. C. D. The shares can be traded freely on the stock exchange. The firm has to disclose its financial statements to the public regularly. If one of them dies, the continuity of the business will not be affected. At least one of them has to bear unlimited liability.

8. Films shown in cinemas can be classified as (1) (2) (3) (4) A. B. C. D. economic goods. producer goods. consumer goods. private goods. (1) and (2) only (2) and (3) only (3) and (4) only (1), (2) and (4) only

9. Refer to the following table. Company A 40 12 4,000 Company B 50 8 6,000

Number of workers Number of working hours per worker per day Quantity of output (units)

According to the above information, which of the following statements are CORRECT? (1) (2) (3) (4) A. B. C. D. Company A has a larger supply of labour than company B. Company A has a smaller supply of labour than company B. The average labour productivity of company A is higher than that of company B. The average labour productivity of company A is lower than that of company B. (1) and (3) only (1) and (4) only (2) and (3) only (2) and (4) only

10. The following table refers to Lilys company. Labour (units) 3 4 5 6 Average product (units) 40 48 54 57

According to the law of diminishing marginal returns, A. B. C. D. the total output of 7 units of labour cannot be 400 units. the total output of 7 units of labour cannot be 420 units. the marginal product of the 7th unit of labour can be 75 units. the marginal product of the 7th unit of labour can be 80 units.

11. After the expansion of the department store, the manager has to handle a lot of administrative work every day and there was a serious communication problem between departments. Which economic concept can explain the above situation? A. B. C. D. internal economies of scale internal diseconomies of scale external diseconomies of scale the law of diminishing marginal return

12. Study the following cost schedule of a competitive firm. Output (units) 35 36 37 38 39 Total cost ($) 200 205 212 220 230

Suppose the price of a product is $18. When the output level of this firm is 38 units, marginal revenue is ____________ than marginal cost. To maximise profit, the firm should ____________ the output level. A. B. C. D. smaller increase larger decrease larger increase smaller decrease

13. Which of the following is NOT a characteristic of marginal benefit? A. B. C. D. It is assumed that the marginal benefit is diminishing. It measures the maximum willingness to pay for an additional unit of a good. Consumers continue to buy until the marginal benefit equals zero so that total benefit can be maximised. At equilibrium, it is the same as the marginal cost of production.

14. A new organic fertiliser has been developed to increase growing speed of apple. Meanwhile apples have been well publicised in the media recently about their health giving qualities. Which of the following diagrams about the market of apple would best describe the case? A.
Unit price S1 S0

B.
Unit price S1 S0

D 1
D1 D0 0 Quantity 0 D1 Quantity D0

C.
Unit price S0 S1

D.
Unit price S0 S1

D1 D0 0 Quantity 0 D1

D0

Quantity

15. Stall A sells only good X and good Y. The original price and quantity demanded for good X are $20 and 30 units respectively. The original price and quantity demanded for good Y are $40 and 50 units respectively. When both of their prices increase by $10, both of their quantity demanded decrease by 20 units. Which of the following statements is CORRECT? A. B. C. D. The price elasticity of demand for good X and good Y are the same. The demand for good Y is more elastic than that of good X. The demand for good X is more elastic than that of good Y. The total revenue of seller increases as the prices of both goods increase.

16. Refer to the following demand and supply schedules of concert tickets. Unit price ($) Quantity demanded (units) Quantity supplied (units) 100 100 40 150 90 50 200 80 60 250 70 70 300 60 80 350 50 90

After the provision of a per-unit subsidy on movie tickets, the new equilibrium price is $200. What is the amount of the per-unit subsidy? A. B. C. D. $10 $50 $100 $150

17. Which of the following statements about cartel and integration is INCORRECT? A. B. C. D. A cartel is a group of firms acting in the same way to share common interest. A cartel is formed by the firms which own superior resources. When all firms in an industry join together in the form of a cartel or integrate, they have monopoly power. When a firm takes over all other firms in an industry, it becomes a monopoly.

18. In which of the following situations is efficiency attained? A. B. C. D. Total social benefit is equal to total cost. Marginal social benefit marginal social cost = 0. The sum of all individual sellers' producer surpluses is maximised. The sum of all individual buyers' consumer surpluses is maximised.

19. Which of the following is INCORRECT? A. B. C. D. Externalities may be eliminated by exchanges between market participants without the need of government intervention. With government intervention, externalities never exist. The lower the transaction costs of exchanges, the more likely a solution for externality can be achieved by market forces. If property rights are well-defined, market forces can be used to achieve an efficient outcome.

20. The following table shows the Gini coefficient of Country A and Country B between 2004 and 2008. Country/Year Country A Country B 2004 0.54 0.75 2005 0.52 0.65 2006 0.43 0.55 2007 0.39 0.45 2008 0.38 0.40

Which of the following statements is CORRECT? A. B. C. D. The income of Country B is more evenly distributed. The Lorenz curve of Country B lies between the Lorenz curve of Country A and the line of perfect income equality. The Lorenz curve of Country A is closer to the line of perfect income equality. The Lorenz curve of Country A is above the line of perfect income equality.

21. Which of the following is an example of stock? A. B. C. D. The weekly pocket money that Peter can receive The total deposits in Eddies savings account up to this moment The GDP of a certain period All of the above

22. Which of the following should be included in Hong Kongs GDP? (1) (2) (3) (4) A. B. C. D. The vehicle insurance premium that a Hong Kong resident has paid to a local insurance company The Mark Six prize that a Hong Kong resident has won The foreign tourists consumption expenditure in Hong Kong The study subsidies that the government has granted to university students (1) and (2) only (1) and (3) only (2) and (3) only (2), (3) and (4) only

23. Which of the following should be included in Hong Kongs GNP? A. B. C. D. The profit that a Hong Kong resident has earned by operating a garment factory in Shenzhen A Hong Kong residents consumption expenditure when travelling in Thailand The school textbook assistance that the government has granted to students A Hong Kong residents expenditure on buying imported goods

24. The following diagram shows the change in Country As inflation rate:

The above information shows that in Country A, A. B. C. D. inflation has no longer existed. deflation has existed. the general price level has risen at a decreasing rate. the general price level has dropped.

25. The following table shows the population information of an economy: Employed population (Persons) Underemployed population (Persons) Labour force (Persons) 85 000 5 000 100 000

The unemployment rate and underemployment rate of the economy are __________ and __________ respectively. A. B. C. D. 15% 5% 15% 10% 15% 5% 20% 5%

26. The following diagram shows the aggregate demand curve of an economy.

When the general price level rises from P1 to P2, output will decrease from Y1 to Y2 because A. B. C. D. the relative prices between goods rise. factors other than the general price level change. peoples purchasing power drops. peoples nominal wage decreases.

27. The following diagram shows the aggregate demand curve of an economy.

Which of the following will lead to the above movement of aggregate demand curve? A. B. C. D. The economy lowers its profits tax rate. The economy imposes sales tax. The economys exchange rate rises. The economys unemployment rate becomes higher.

28. The following shows the AS-AD diagram of an economy which is at E1 originally:

Which of the following is IMPOSSIBLE to make the economy attain E2? A. B. C. D. The production cost of the economys firms rises and peoples disposable income increases. The government of the economy raises profits tax rate and increases consumption. The economys exchange rate rises and its government requires firms to improve the working environment of their workers. The economy is attacked by a snow storm and the wealth of its people increases.

29. Time deposit can better serve as a __________ than demand deposit. A. B. C. D. store of value medium of exchange unit of account standard of deferred payment

30. Which of the following statements about restricted licence banks are correct? (1) (2) (3) A. B. C. D. They can accept deposits of HK$1 000 000 or above. They can accept time deposits or Negotiable Certificates of Deposit. They can accept a 3-month time deposit. (1) and (2) only (1) and (3) only (2) and (3) only (1), (2) and (3)

31. The legal reserve ratio of a banking system is 25% and the public never holds cash. The following table is the banking systems balance sheet: Assets ($) Reserves Loans 500 4 500 Liabilities ($) Deposits 5 000

Since the banking system has a reserve shortage, it should call back its loans. Which of the following statements is correct? A. B. C. D. The reserves of the banking system will increase to $1 250. The total loans of the banking system will be $1 500. The total deposits of the banking system will remain unchanged. All of the above
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32. The following diagram shows the asset demand for money curve of a country:

When ____________, the asset demand for money curve will shift from Ma1 to Ma2. A. B. C. D. income drops nominal interest rate drops people expect nominal interest rate to rise All of the above are incorrect.

33. The following table shows the nominal assets and liabilities of four persons: Mr Chan Miss Lee Miss Cheung Mr Wong Assets ($) 1 000 45 000 5 00 1000 Liabilities 500 46 000 450 1250

Suppose unanticipated inflation appears. Who will gain the most? A. B. C. D. Mr. Chan Miss Lee Miss Cheung Mr. Wong

34. Suppose the three-month time deposits rate is 6%. Miss Ma expects the inflation rate in the coming three months to be 3%. However, the actual inflation rate in the period is 4%. To Miss Ma, the actual real interest rate of time deposits is ______. A. B. C. D. 1% 2% 3% 4%

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35. Which of the following diagrams illustrate regressive taxes? (1) (2)

(3)

(4)

A. B. C. D.

(1) and (3) only (1) and (4) only (2) and (3) only (2) and (4) only

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36. Suppose the economy of a country did not produce at its full capacity originally. Its government plans to increase expenditure and tax by $10 million respectively to lower the unemployment rate. Which of the following diagrams are correct? (1) (2)

(3)

(4)

A. B. C. D.

(1) and (3) only (1) and (4) only (2) and (3) only (2) and (4) only

37. The following table shows the quantities of telephones or pens that countries A and B can produce with 1 unit of resources: Telephone (units) 5 2 Pen (units) 10 8

Country A Country B

OR OR

Which of the following statements is INCORRECT? A. B. C. D. Country A will export telephones. Country A has an absolute advantage in producing pens. Country B has a comparative advantage in producing telephones. Country B will import telephones.

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38. The following diagram is the beef market of Brazil after the imposition of import quota (q). The price of beef increases from PW to Pq:

Which of the following is the loss in total social surplus of Brazils beef market after the imposition of import quota? A. B. C. D. A+B+F A+B+D+F A+B+C+D+E C+E

39. Which of the following will NOT affect Hong Kongs balance of payments account? A. B. C. D. The expenditure of a Hong Kong resident on taking a flight of a Thailand airline The investment expenditure of an Italian company on the construction of a hotel in Hong Kong The expenditure of a foreign tourist on jewellery in Hong Kong The value of newly-issued shares of a Hong Kong listed company that Hong Kong residents buy

40. The appreciation of the Renminbi (RMB) against the US dollar (USD) will lead to A. B. C. D. a decrease in the quantity of goods exported from the US to the mainland. a decrease in the quantity of goods exported from Hong Kong to the mainland. a decrease in the quantity of goods exported from the mainland to the US. an increase in the quantity of goods exported from the mainland to the US.

END OF PAPER
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