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Economics 题库
历年真题风格题库（原始题库）
The production possibility curve (PPC) of an economy shifts outward. Which is a possible cause? A. A rise in unemployment B. A fall in the size of the labour force C. An improvement in technology D. A rise in the price of consumer goods Answer: CMarking: Outward shift = more of both goods producible → from resource growth or tech progress. C correct. A/B shift along/inward; D changes relative price, not capacity.
Q2 · Basic · PPC
Which of the following would cause a movement along (not a shift of) the PPC? A. Discovery of new oil reserves B. An increase in the retirement age C. A change in the allocation of resources between two goods D. A technological breakthrough in manufacturing Answer: CMarking: Movement along the curve = reallocation between existing capacity. A/B/D shift the curve.
Q3 · Basic · Opportunity Cost
A student spends 3 hours studying Economics instead of working part-time at $60/hour. The opportunity cost is: A. $180 B. The grade improvement in Economics C. The leisure time enjoyed D. The exam score in other subjects Answer: AMarking: Opportunity cost = highest-valued option forgone = $60×3 = $180 income given up.
Q4 · Basic · Opportunity Cost
"Free goods" have zero opportunity cost because they are: A. Produced by the government B. Not scarce C. Always abundant in supply D. Non-excludable Answer: BMarking: Free goods are non-scarce (e.g. air), so no alternative use sacrificed.
Q5 · Basic · Economic Problem
The basic economic problem arises because: A. Resources are scarce relative to wants B. Technology is advancing too fast C. Governments interfere with markets D. Population is declining Answer: AMarking: Scarcity of resources vs unlimited wants → what/how/how much/for whom to produce.
Q6 · Drill · Demand
If the price of a normal good rises, quantity demanded will: A. Rise B. Fall C. Remain unchanged D. Become perfectly inelastic Answer: BMarking: Law of demand: price↑ → Qd↓ for normal goods.
Q7 · Drill · Demand
Which would shift the demand curve for petrol rightwards? A. A rise in the price of petrol B. A fall in consumers' income (petrol is normal) C. A rise in the price of cars (complements) D. An expectation that petrol prices will rise further Answer: DMarking: Expected future price rise → buy now → demand↑. A is movement along; B↓ (normal); C↓ (complement).
Q8 · Drill · Demand
Fish is an inferior good. A rise in consumers' income will cause the demand for fish to: A. Increase B. Decrease C. Remain unchanged D. Become perfectly elastic Answer: BMarking: Inferior good: income↑ → demand↓.
Q9 · Drill · Supply
A rise in the cost of raw materials will cause the supply curve to: A. Shift rightwards B. Shift leftwards C. Move upwards along the curve D. Become more elastic Answer: BMarking: Higher production cost → less supplied at each price → leftward shift.
Q10 · Drill · Supply
Which would increase the supply of rice? A. A rise in the price of fertiliser B. Bad weather reducing harvest C. An improvement in farming technology D. A rise in the wage of farm workers Answer: CMarking: Tech improvement lowers cost per unit → supply↑.
Q11 · Drill · Equilibrium
The market is in equilibrium. Demand then increases while supply is unchanged. In the new equilibrium: A. Price falls, quantity falls B. Price rises, quantity rises C. Price rises, quantity falls D. Price falls, quantity rises Answer: BMarking: Demand↑ → excess demand at old price → price↑ → quantity↑.
Q12 · Drill · Equilibrium
A price ceiling set below the equilibrium price will lead to: A. Surplus B. Shortage C. Excess supply D. Equilibrium Answer: BMarking: Ceiling below Pe → Qd > Qs → shortage.
Q13 · Drill · Price Control
A minimum wage set above the equilibrium wage causes: A. Shortage of labour B. Surplus of labour (unemployment) C. No effect D. Higher employment Answer: BMarking: Wage floor above equilibrium → Qs(labour) > Qd → unemployment.
Q14 · Basic · Elasticity Definition
Price elasticity of demand (PED) measures: A. The slope of the demand curve B. Responsiveness of quantity demanded to price change C. Total revenue change D. Cross-price effect Answer: BMarking: PED = %ΔQd / %ΔP.
Q15 · Drill · PED Calculation
Price rises from $10 to $12 (20%↑). Quantity demanded falls from 100 to 80 (20%↓). PED = ? A. 0.2 B. 1.0 C. 1.5 D. 2.0 Answer: BMarking: |%ΔQ/%ΔP| = 20/20 = 1.0 → unit elastic.
Q16 · Drill · PED Interpretation
If PED = 0.4, demand is: A. Elastic B. Inelastic C. Perfectly elastic D. Unit elastic Answer: BMarking: |PED|<1 → inelastic.
Q17 · Drill · PED and Revenue
Demand is inelastic (PED=0.5). A 10% price rise will cause total revenue to: A. Rise B. Fall C. Unchanged D. Fall to zero Answer: AMarking: Inelastic → price↑ raises TR (Q falls less than proportionally).
Q18 · Drill · PED Determinants
Demand for which is likely MOST elastic? A. Salt B. Branded soft drinks C. Tap water D. Insulin Answer: BMarking: More substitutes → more elastic. B has close substitutes.
Q19 · Drill · PED Determinants
Demand tends to be more inelastic when: A. Many substitutes exist B. It is a necessity C. The time period is long D. It is a small share of income Answer: BMarking: Necessities (insulin, water) → inelastic.
Q20 · Basic · PES
Supply of which is likely MOST inelastic in the short run? A. Restaurant meals B. Wheat C. Houses D. T-shirts Answer: CMarking: Houses take long to build → inelastic supply short run.
Q21 · Basic · Cross Elasticity (XED)
Good X and Y have XED = +2. They are: A. Complements B. Substitutes C. Unrelated D. Inferior goods Answer: BMarking: XED>0 → substitutes.
Q22 · Basic · Income Elasticity (YED)
YED = +1.5. The good is: A. Inferior B. Normal necessity C. Normal luxury D. Giffen Answer: CMarking: YED>1 → normal luxury.
Q23 · Drill · YED
If YED = -0.6, the good is: A. Normal luxury B. Normal necessity C. Inferior D. Substitute Answer: CMarking: YED<0 → inferior.
Q24 · Basic · Firm Objective
In perfect competition, a firm is a: A. Price maker B. Price taker C. Monopoly D. Cartel member Answer: BMarking: Many firms, homogeneous product → price taker.
Q25 · Basic · Perfect Competition
A feature of perfect competition is: A. Product differentiation B. Barriers to entry C. Many buyers and sellers D. Price setting power Answer: CMarking: Many participants, free entry, homogeneous product, perfect info.
Q26 · Drill · Monopoly
A monopolist maximizes profit where: A. P = MC B. MR = MC C. AR = MR D. P = AC Answer: BMarking: Profit max where MR=MC; price from demand curve above.
Q27 · Drill · Monopoly
Compared with perfect competition, a monopoly produces: A. More at lower price B. Less at higher price C. Same quantity D. More at higher price Answer: BMarking: Monopoly restricts output to raise price → DWL.
Q28 · Basic · Monopoly Source
A natural monopoly arises when: A. The firm has a patent B. LRAC falls over the whole output range C. The government licenses it D. There is product differentiation Answer: BMarking: Declining LRAC → one firm serves market cheapest.
Q29 · Basic · Externalities
A negative production externality causes: A. MSC < MPC B. MSC > MPC C. MSB > MPB D. No welfare loss Answer: BMarking: Negative externality → social cost > private cost.
Q30 · Drill · Externalities
Smoking creates a negative consumption externality. The market outcome produces: A. Too little B. Too much C. The efficient amount D. None Answer: BMarking: MPB > MSB → over-consumption.
Q31 · Drill · Externalities Remedy
A corrective tax (Pigouvian tax) on pollution aims to: A. Raise government revenue only B. Internalise the externality by equating MPC to MSC C. Ban the activity D. Subsidise consumers Answer: BMarking: Tax = marginal external cost → efficient output.
Q32 · Basic · Public Goods
A public good is characterised by: A. Rivalry and excludability B. Non-rivalry and non-excludability C. Rivalry and non-excludability D. Excludability only Answer: BMarking: Non-rival (one's use doesn't reduce another's) + non-excludable → free-rider problem.
Q33 · Basic · Market Failure
Which is a source of market failure? A. Perfect competition B. Externalities C. Rational consumers D. Full information Answer: BMarking: Externalities, public goods, info failure, monopoly → failure.
Q34 · Drill · Government Intervention
A subsidy to producers of renewable energy will: A. Shift supply leftwards B. Shift supply rightwards and increase output C. Raise price to consumers D. Reduce quantity Answer: BMarking: Subsidy lowers cost → supply↑, output↑, price↓.
Q35 · Drill · Government Intervention
A specific tax on each unit sold will: A. Shift supply rightwards B. Shift supply leftwards, raising price to consumers C. Lower equilibrium price D. Increase quantity traded Answer: BMarking: Per-unit tax ↑ cost → supply↑left, price↑, Q↓.
Q36 · Basic ·Merit/Demerit Goods
Education is often provided by government because it is a: A. Demerit good B. Merit good with positive externalities C. Public good D. Free good Answer: BMarking: Merit good → under-consumed privately; positive externality.
Q37 · Drill · Income Distribution
A regressive tax takes: A. A higher % from high incomes B. A lower % from high incomes C. A flat % of all incomes D. Only corporate profits Answer: BMarking: Regressive: burden falls relatively heavier on low income (% of income falls as income rises).
Q38 · Basic · Equity vs Efficiency
A trade-off between equity and efficiency means: A. More equality always raises efficiency B. Some policies improving equity may reduce efficiency C. They never conflict D. Efficiency is irrelevant Answer: BMarking: Redistribution may distort incentives.
Q39 · Drill · Demand
If two goods are complements (XED<0) and the price of good Y rises, demand for X will: A. Rise B. Fall C. Unchanged D. Perfectly elastic Answer: BMarking: Complement: Py↑ → Qy↓ → Qx↓.
Q40 · Drill · Supply Elasticity
If supply is perfectly inelastic, a rise in demand will: A. Raise price only, quantity unchanged B. Raise quantity only C. Lower price D. No change Answer: AMarking: Perfectly inelastic supply (vertical) → demand↑ raises P, Q fixed.
Q41 · Drill · PED Revenue
For elastic demand (PED=2), a 5% price cut will cause total revenue to: A. Rise B. Fall C. Unchanged D. Halve Answer: AMarking: Elastic → price↓ raises TR (Q↑ more than proportionally).
Q42 · Basic · Firm Types
Oligopoly is characterised by: A. Many small firms B. A few large interdependent firms C. One seller D. Free entry Answer: BMarking: Few firms, barriers to entry, strategic interdependence.
Q43 · Basic · Monopolistic Competition
A feature of monopolistic competition is: A. Homogeneous product B. Product differentiation C. One firm D. Perfect information Answer: BMarking: Many firms, differentiated products, free entry.
Q44 · Drill · Profit
Normal profit is earned when: A. TR > TC B. TR = TC (including opportunity cost) C. AR > AC D. MC = 0 Answer: BMarking: Normal profit = zero economic profit = TR=TC (explicit+implicit).
Q45 · Basic · Total/Average/Marginal
When marginal cost is below average cost, average cost is: A. Rising B. Falling C. Constant D. Maximised Answer: BMarking: MC<AC pulls AC down.
Q46 · Drill · Market Structure
Which earns abnormal profit in the long run? A. Perfect competition B. Monopolistic competition C. Monopoly (with barriers) D. All of the above Answer: CMarking: Only monopoly sustains abnormal profit long run (barriers).
Q47 · Basic · Price Discrimination
Third-degree price discrimination charges different prices based on: A. Quantity bought B. Consumer group C. Time of day only D. Cost of production Answer: BMarking: Group-based (e.g. student vs adult).
Q48 · Drill · External Benefit
Vaccination yields a positive consumption externality. The market produces: A. Too much B. Too little C. Efficient amount D. None Answer: BMarking: MSB>MPB → under-consumption → subsidy justified.
Q49 · Basic · Coase Theorem
The Coase theorem states that externalities can be efficiently resolved if: A. Government taxes always B. Property rights are well-defined and transaction costs low C. Firms merge D. Consumers boycott Answer: BMarking: With clear rights & low costs, private bargaining reaches efficiency.
Q50 · Drill · Government Failure
Government failure occurs when intervention: A. Corrects a market failure B. Creates a worse outcome than the original failure C. Provides public goods D. Taxes demerit goods Answer: BMarking: e.g. subsidy distortion, bureaucratic cost.
Q51 · Basic · Factors of Production
Which is NOT a factor of production? A. Land B. Labour C. Capital D. Money Answer: DMarking: Factors: land, labour, capital, entrepreneurship. Money is not a factor.
Q52 · Drill · PPC Shape
A bowed-out (concave) PPC reflects: A. Constant opportunity cost B. Increasing opportunity cost C. Decreasing opportunity cost D. Zero cost Answer: BMarking: Resources not equally suited → rising OC as specialisation increases.
Q53 · Basic · Specialisation
Comparative advantage is based on: A. Absolute productivity B. Lower opportunity cost C. Higher wages D. Technology lead Answer: BMarking: Specialise where OC lowest → gain from trade.
Q54 · Drill · Demand Shift
A successful advertising campaign for brand X will: A. Shift demand left B. Shift demand right C. Move along demand D. Lower price Answer: BMarking: Advertising (for normal good) ↑ preference → demand↑.
Q55 · Basic · Equilibrium Change
Supply decreases and demand decreases. The equilibrium quantity will: A. Definitely rise B. Definitely fall C. Definitely unchanged D. Be indeterminate without magnitudes Answer: DMarking: Both ↓ Q → Q falls; price ambiguous. (Q unambiguous fall, price indeterminate — option D best captures indeterminacy of price; quantity falls so strictly "definitely fall" also true. For DSE, both ↓ → Q↓ certain, P ambiguous → choose "indeterminate" only if about price. Here safest: Q falls. Re-answer: B is correct for quantity; but option phrasing "equilibrium quantity will" → B definitely fall.) Answer: B
Part 2 Macroeconomics（Q56–Q110）
Q56 · Basic · GDP
Gross Domestic Product measures the total value of: A. All goods produced by a country's citizens B. Final goods and services produced within a country's borders C. Intermediate goods only D. Second-hand sales Answer: BMarking: GDP = market value of final goods/services produced within borders in a period.
Q57 · Basic · GDP Approaches
Which is NOT a method to calculate GDP? A. Expenditure approach B. Income approach C. Output approach D. Unemployment approach Answer: DMarking: GDP = C+I+G+(X−M) = sum income = sum output.
Q58 · Drill · GDP Components
An increase in exports will cause GDP to: A. Fall B. Rise C. Unchanged D. Become negative Answer: BMarking: Net exports (X−M) ↑ → GDP↑.
Q59 · Basic · Real vs Nominal
Real GDP is nominal GDP adjusted for: A. Population B. Price level changes C. Interest rates D. Exchange rates Answer: BMarking: Real = nominal / price index → removes inflation.
Q60 · Drill · GDP Growth
Nominal GDP rose 8% and the price level rose 3%. Real GDP grew by about: A. 11% B. 5% C. 3% D. 8% Answer: BMarking: Real ≈ nominal − inflation = 8−3 = 5%.
Q61 · Basic · AD Components
Aggregate demand consists of: A. C + I + G + (X−M) B. C + S + T C. Only consumption D. Y = C + S Answer: AMarking: AD = C+I+G+NX.
Q62 · Drill · AD Shift
A rise in household confidence increases: A. C, shifting AD right B. C, shifting AD left C. G, shifting AD right D. Net exports Answer: AMarking: Confidence↑ → C↑ → AD↑ right.
Q63 · Basic · AS
Short-run aggregate supply (SRAS) is upward sloping because: A. Wages are sticky in the short run B. Technology is fixed C. Prices are flexible D. Resources unlimited Answer: AMarking: Sticky nominal wages → higher price level raises profits → more output SR.
Q64 · Drill · AD-AS Equilibrium
AD increases while SRAS unchanged. Result: A. Price level rises, real output rises B. Price level falls C. Output falls D. No change Answer: AMarking: AD↑ → PL↑, Y↑ (SR).
Q65 · Basic · Inflation
Demand-pull inflation is caused by: A. Rising costs of production B. Excess aggregate demand C. Falling money supply D. Productivity gains Answer: BMarking: "Too much money chasing too few goods."
Q66 · Basic · Inflation Types
Cost-push inflation arises from: A. Rising oil prices increasing production costs B. Excess demand C. Falling taxes D. Rising savings Answer: AMarking: Supply-side cost increase shifts SRAS left → PL↑.
Q67 · Drill · Unemployment
Frictional unemployment is: A. Due to recession B. Temporary, from job searching C. Due to skills mismatch D. Structural Answer: BMarking: Short-term transition between jobs.
Q68 · Basic · Unemployment Types
Structural unemployment results from: A. Seasonal demand B. Mismatch of skills/location with available jobs C. Job quitting D. High inflation Answer: BMarking: Structural change in economy.
Q69 · Drill · Unemployment Measurement
The unemployment rate is: A. Unemployed / population B. Unemployed / labour force C. Employed / population D. Labour force / population Answer: BMarking: UR = unemployed ÷ labour force ×100%.
Q70 · Basic · Natural Rate
The natural rate of unemployment includes: A. Only cyclical B. Frictional + structural C. Zero D. All unemployment Answer: BMarking: Natural = frictional + structural (excludes cyclical).
Q71 · Basic · Money Functions
Money serves as a medium of exchange, a unit of account, and a: A. Substitute good B. Store of value C. Factor of production D. Public good Answer: BMarking: Three functions: medium, unit, store.
Q72 · Drill · Money Supply
If the central bank buys government bonds from banks, the money supply will: A. Fall B. Rise C. Unchanged D. Become negative Answer: BMarking: Open market purchase → reserves↑ → money supply↑.
Q73 · Basic · Banking
Banks create money through: A. Printing notes B. Lending out excess reserves C. Government orders D. Foreign exchange Answer: BMarking: Fractional reserve lending multiplies deposits.
Q74 · Basic · Exchange Rate
If the HK dollar appreciates against the US dollar, HK exports to the US become: A. Cheaper for US buyers B. More expensive for US buyers C. Unchanged D. Banned Answer: BMarking: HK$↑ → US$ price of HK goods↑ → exports↓.
Q75 · Drill · Exchange Rate
A depreciation of the domestic currency will tend to: A. Improve the trade balance (via expenditure switching) B. Worsen the trade balance C. Lower exports D. Raise imports Answer: AMarking: Depreciation → exports cheaper, imports dearer → X↑ M↓ → trade balance improves (J-curve short-run exception noted).
Q76 · Basic · Trade
A country has a comparative advantage in a good if it has: A. The lowest absolute cost B. The lowest opportunity cost C. The highest wage D. The most resources Answer: BMarking: Comparative advantage = lowest OC.
Q77 · Drill · Tariff
A tariff on imported cars will: A. Lower domestic price B. Raise domestic price and protect local producers C. Increase imports D. Improve consumer surplus Answer: BMarking: Tariff ↑ price → domestic producers gain, consumers lose, gov revenue.
Q78 · Basic · Free Trade
Free trade tends to: A. Reduce overall efficiency B. Increase allocative efficiency via specialisation C. Eliminate all jobs D. Raise prices Answer: BMarking: Comparative advantage → gains from trade.
Q79 · Basic · Balance of Payments
The current account includes: A. Foreign direct investment B. Trade in goods/services, income, transfers C. Portfolio investment D. Official reserves Answer: BMarking: Current account = goods, services, primary income, secondary income.
Q80 · Drill · Current Account
A current account deficit means: A. Exports exceed imports B. Imports of goods/services exceed exports plus net income/transfers C. Capital inflows are negative D. GDP falls Answer: BMarking: CA deficit = country spends more abroad than earns.
Q81 · Basic · Economic Growth
Economic growth is best measured by: A. Rise in nominal GDP B. Rise in real GDP per capita over time C. Rise in population D. Rise in inflation Answer: BMarking: Sustainable growth = real GDP/capita ↑.
Q82 · Drill · Growth Sources
Which promotes long-run economic growth? A. Rising consumption only B. Investment in human capital and technology C. Printing more money D. Trade barriers Answer: BMarking: Productivity via capital, tech, skills.
Q83 · Basic · Fiscal Policy
Expansionary fiscal policy involves: A. Raising taxes B. Cutting government spending C. Increasing G or cutting T D. Selling bonds Answer: CMarking: G↑ or T↓ → AD↑.
Q84 · Drill · Monetary Policy
Contractionary monetary policy: A. Lowers interest rates B. Raises interest rates to curb inflation C. Increases money supply D. Cuts taxes Answer: BMarking: Tight money → r↑ → C,I↓ → AD↓.
Q85 · Basic · Policy Mix
During a recession with high unemployment, appropriate policy is: A. Contractionary fiscal B. Expansionary fiscal and/or monetary C. Higher interest rates D. Trade surplus only Answer: BMarking: Stimulate AD.
Q86 · Basic · HK Economy
Hong Kong's currency is linked to the US dollar via a: A. Free float B. Currency board (Linked Exchange Rate) C. Fixed gold standard D. Crawling peg Answer: BMarking: Linked Rate since 1983, ~7.80 HKD/USD.
Q87 · Drill · HK Economy
Because of the linked rate, Hong Kong's interest rates largely follow: A. Mainland China rates B. US rates C. EU rates D. Japanese rates Answer: BMarking: To maintain peg, HK rates track US.
Q88 · Basic · Living Standards
GDP per capita may overstate well-being because it excludes: A. Market output B. Non-market leisure and environmental quality C. Consumption D. Investment Answer: BMarking: GDP ignores leisure, inequality, environment, non-market activity.
Q89 · Drill · Multiplier
MPC = 0.8. The multiplier is: A. 0.8 B. 1.25 C. 5 D. 2 Answer: CMarking: k = 1/(1−MPC) = 1/0.2 = 5.
Q90 · Drill · Multiplier Effect
An increase in investment of $10m with multiplier 5 will raise equilibrium income by: A. $2m B. $10m C. $50m D. $500m Answer: CMarking: ΔY = k × ΔI = 5 × 10 = 50m.
Q91 · Basic · SRAS Shock
A sudden rise in global oil prices will: A. Shift SRAS right B. Shift SRAS left, raising inflation and lowering output (stagflation) C. Lower inflation D. Raise output Answer: BMarking: Cost-push → SRAS left → PL↑ Y↓.
Q92 · Drill · Phillips Curve
The short-run Phillips curve shows a trade-off between: A. Inflation and unemployment B. Growth and trade C. Tax and spending D. Exports and imports Answer: AMarking: Lower unemployment ↔ higher inflation (SR).
Q93 · Basic · National Income Identity
In a closed economy, Y = A. C + I + G + (X−M) B. C + I + G C. C + S + T D. C + I Answer: BMarking: Closed economy: no trade → Y = C+I+G.
Q94 · Drill · Savings-Investment
In a closed economy at equilibrium, S = A. C B. I (private saving = investment, with balanced gov) C. G D. T Answer: BMarking: Y=C+I+G and Y=C+S+T; with G=T, I=S.
Q95 · Basic · Terms of Trade
Terms of trade = (export price index)/(import price index). An improvement means: A. Exports buy more imports B. Imports cost more C. No change D. Trade falls Answer: AMarking: TOT↑ → more imports per unit export.
Q96 · Drill · Protectionism
A quota restricts imports by: A. Taxing them B. Limiting physical quantity C. Banning exports D. Subsidising them Answer: BMarking: Quota = quantitative limit.
Q97 · Basic · Exchange Rate System
A fixed exchange rate is maintained by the central bank: A. Never intervening B. Buying/selling foreign reserves to defend the rate C. Floating freely D. Ignoring markets Answer: BMarking: Intervention in forex market.
Q98 · Drill · Capital Account
Foreign direct investment (FDI) into HK is recorded in the: A. Current account B. Capital and financial account C. Trade balance only D. Fiscal account Answer: BMarking: FDI = financial account inflow.
Q99 · Basic · Sustainable Growth
Sustainable economic growth requires: A. Depleting all natural resources B. Meeting present needs without compromising future generations C. Maximum consumption D. Zero saving Answer: BMarking: Intergenerational equity.
Q100 · Drill · Policy Effectiveness
In a liquidity trap, monetary policy is: A. Highly effective B. Ineffective (interest rates near zero) C. Inflationary D. Illegal Answer: BMarking: r≈0 → money demand perfectly elastic → QE/monetary weak; fiscal needed.
Q101 · Structured · AD-AS
Explain how a negative demand shock affects an economy in the AD-AS model, and evaluate a policy response. Answer:
- (a) Negative demand shock (e.g. fall in C or I) shifts AD left → equilibrium real output falls, price level falls (recession, possibly rising unemployment).
- (b) Policy: expansionary fiscal (G↑/T↓) or monetary (r↓) shifts AD right, restoring output but may raise price level/debt.
- (c) Evaluation: if liquidity trap, fiscal more effective; if supply-side rigid, effect smaller; time lags reduce effectiveness. Marking points: correct AD shift (1); output & price effects (1+1); identify one policy (1); evaluate limitation (1-2).
Q102 · Structured · Elasticity & Tax
A government imposes a specific tax on cigarettes (inelastic demand). Who bears more of the tax burden? Answer:
- Tax incidence falls more on consumers because demand is inelastic (PED<1): quantity falls little while price to consumers rises substantially; producers pass most burden forward.
- Graphically, the tax wedge is borne mostly by consumers; government revenue = tax×new Q. Marking points: state inelastic demand (1); consumers bear more (1); reasoning via small Q response (1); mention revenue (1).
Q103 · Essay outline · Market Failure
"Governments should always intervene to correct market failure." Discuss. Answer framework:
- Argue YES: externalities (pollution), public goods (defence), info failure, merit/demerit goods → market under/over-supplies → govt tax/subsidy/regulation/provision improves welfare.
- Argue NO / cautious: government failure (info asymmetry, bureaucratic cost, distortion, capture) may worsen outcome; Coase solution or regulation may suffice.
- Conclusion: intervene when benefit > cost; prefer market-friendly tools (Pigouvian tax over ban). Marking points: 2+ valid for-intervention examples (2); 2+ against/government-failure points (2); balanced conclusion with condition (2). [DSE essay ≈ 8-10 marks per part]
Q104 · Structured · PPC
An economy produces only guns and butter. Show the effect of a war (resources to guns) and then a tech improvement in butter. Answer:
- War: movement along PPC toward more guns, less butter (reallocation).
- Tech in butter: PPC bows outward specifically on butter axis → can produce more butter at any gun level.
- Opportunity cost of guns rises as specialisation deepens (bowed curve). Marking points: movement along (1); outward shift on one axis (1); OC explanation (1).
Q105 · Data Response · Trade
HK has persistent current account surplus. Explain causes and a risk. Answer:
- Causes: entrepôt trade, services exports (finance, tourism), low import content; capital account inflows fund surplus.
- Risk: reliance on external demand makes HK vulnerable to global downturns; trade frictions. Marking points: service/trade surplus source (1-2); vulnerability risk (1-2).
Q106 · Structured · Unemployment
Distinguish cyclical and structural unemployment and suitable policies. Answer:
- Cyclical: due to downturn; policy = demand stimulus (fiscal/monetary).
- Structural: skills mismatch; policy = retraining, education, labour mobility, not just stimulus. Marking points: correct definitions (2); matching policies (2).
Q107 · Structured · Money
Explain how the money multiplier works and a limit. Answer:
- Banks hold reserves; lend excess → deposits rise → further lending; money supply = monetary base × multiplier (1/reserve ratio).
- Limit: if public holds more cash or banks don't lend (risk aversion), multiplier falls; central bank controls base. Marking points: deposit creation chain (2); formula (1); limitation (1-2).
Q108 · Essay outline · Growth vs Environment
Evaluate whether economic growth inevitably harms the environment. Answer:
- YES route: scale effect raises resource use/emissions; unless decoupled.
- NO/conditional: tech progress, green growth, regulation, services-based economies (HK) decouple; environmental Kuznets curve.
- Conclusion: not inevitable if policy + tech align. Marking points: scale effect (1-2); decoupling/tech (1-2); balanced conclusion (2).
Q109 · Structured · Fiscal vs Monetary
Compare the speed and side-effects of fiscal vs monetary policy in HK. Answer:
- HK: monetary tied to US (linked rate) → local discretion limited; fiscal (gov budget) more autonomous tool.
- Fiscal: faster political will but debt/crowding-out; monetary: through interest rates, but peg limits independence. Marking points: link rate limits monetary autonomy (2); fiscal autonomy (1-2); side effects (1-2).
Q110 · Data Response · Inflation
Inflation is 5% and unemployment 3% (near full employment). Recommend a policy. Answer:
- Contractionary monetary (r↑) and/or tighter fiscal to cool demand-pull inflation; accept short-run rise in unemployment toward natural rate.
- Avoid over-tightening that causes recession; monitor expectations. Marking points: identify contractionary tool (2); rationale (1-2); caution (1).