NSS EXPLORING ECONOMICS

HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION

S4 FINAL EXAM (2021 Mar)

ECONOMICS PAPER 1
Time allowed: 40 minutes

INSTRUCTIONS

1. 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.

2. All questions carry equal marks.

3. ANSWER ALL QUESTIONS.

4. You should mark only ONE answer for each question. If you mark more than one answer,
you will receive NO MARKS for that question.

5. No marks will be deducted for wrong answers.

NSS Exploring Economics 1 © Pearson Education Asia Limited 2021

S4 Final Exam (2021 March) (Paper 1)
There are 30 questions in this paper. Choose the BEST answer for each question.

1. Due to the outbreak of the coronavirus, the Hong Kong government banned bars from
operating. Which of the following events would raise the cost of operating bars illegally?
(1) The government steps up enforcement so that the risk of being caught increases.
(2) The government raises the penalty for the illegal operation of bars.
(3) There are many fewer customers than before the outbreak of the coronavirus.
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

2. Study the following statements extracted from the Chief Executive’s 2020 Policy
Address.

Statement (1): One of our urgent priorities is to restore HKSAR’s constitutional

order and political system from chaos.
Statement (2): During the multiple waves of the epidemic, the Hong Kong
community has shown its unity and the spirit of mutual help in
working towards a common goal.
Statement (3): Meeting Hong Kong people’s housing needs is a goal too important
to forsake!

Which of the above are normative statements?

A. Statements (1) and (2) only
B. Statements (1) and (3) only
C. Statements (2) and (3) only
D. Statements (1), (2) and (3)

3. The government planned to expand the $2 transport fare concession scheme by lowering
the eligible age from the current 65 to 60. The above proposal is related to the ________
question.
A. ‘how to produce’
B. ‘for whom to produce’
C. ‘for whom to produce’ and ‘how to produce’
D. ‘what to produce’ and ‘how to produce’

NSS Exploring Economics 2 © Pearson Education Asia Limited 2021

S4 Final Exam (2021 March) (Paper 1)
4. Which of the following statements about a market economy is correct?
A. The government does not make any plan.
B. The government does not regulate any market.
C. All things must have a positive price.
D. Most of the resources are privately owned.

5. Which of the following statements about the covid-19 vaccines is correct?

A. Research about the vaccine is a private good.
B. The vaccines are a private good.
C. The vaccines provided by the government free-of-charge are a free good.
D. The vaccines prepared for healthcare workers are a consumer good.

6. The following table shows the input-output relationship of a fully automatic restaurant.
Suppose robot staff and premises are the only two inputs required in the production
process.

Robot staff (units) Size of premise (ft2) Total products (units)

1 10,000 10,000
2 10,000 22,000
3 10,000 33,000
4 10,000 40,000

Which of the following statements is correct?

A. The above production data cannot illustrate the law of diminishing marginal returns
because the total product is increasing.
B. The above production data illustrates economies of scale because the total product is
increasing.
C. The restaurant experiences economies of scale when it employs the first and second
units of robot staff.
D. Diminishing marginal returns set in after the second unit of robot staff is employed.

7. Mary and Peter establish a firm to produce surgical masks. The quality of their masks
does not meet the standards so that the firm incurs a great loss. As a result, they use their
personal property to settle the firm’s debts. Which of the following is correct?
A. They need to disclose the firm’s financial accounts to the public.
B. The firm is a legal entity.
C. Mary and Peter must share the loss equally.
D. The firm is operated as a partnership.

NSS Exploring Economics 3 © Pearson Education Asia Limited 2021

S4 Final Exam (2021 March) (Paper 1)
8. Refer to the following conversation.
David: The covid-19 epidemic does not affect the income from renting out my shop
because the income has been fixed by the five-year contract with the tenant.
Susan: I have lost my job. I currently work as a volunteer in a healthcare centre.

Based on the above conversation, which of the following statements is correct?

A. David is an entrepreneur.
B. Susan provides labour.
C. David earned interest and rent in Economics.
D. Susan has not provided any factor of production because she does not earn any
income.

9. Fiat Chrysler (Italian automobile manufacturer) and Peugeot SA (French automobile

manufacturer) have completed their merger and formed a new automotive group called
Stellantis. Which of the following statements about the merger is correct?
A. The merger should be classified as lateral expansion.
B. After the merger, the global automotive market must become less efficient.
C. The merger can help spread the risk through product diversification.
D. The newly formed automotive group may have a lower average cost of production.

10. Refer to the following table about the cost-output relationship of a price-taking firm.

Output (units) Total cost ($) MC

0 6 -
1 10 4
2 15 5
3 21 6
4 28 7
5 36 8

If the market price is $6, which of the following statements are correct?
(1) The firm operates in the long run.
(2) The firm will produce at 3 units.
(3) The profit-maximising profit is $3.
(4) The producer surplus is $3.
A. (1) and (3) only
B. (1) and (4) only
C. (2) and (3) only
D. (2) and (4) only

NSS Exploring Economics 4 © Pearson Education Asia Limited 2021

S4 Final Exam (2021 March) (Paper 1)
11. Refer to the following table about the production data for Firm A.

Before epidemic After epidemic

Number of full-time workers 10 10
Number of part-time workers 5 0
Average working hours of
8 8
full-time workers
Average working hours of
12 0
part-time workers
Total output (units) 12,800 8,000

Which of the following statements is correct?

A. The labour productivity of part-time workers is higher than that of full-time workers.
B. The training provided for part-time workers may be less than full-time workers.
C. Part-time workers may be more skilled.
D. Firm A enjoys the economies of scale.

12. The following diagram shows the relationship of the three types of production. What do H
and J stand for, respectively?

Primary
production

J
Secondary Tertiary
production production

A. raw materials; producer goods

B. raw materials; consumer goods
C. services; economic goods
D. producer goods; consumer goods

13. Which of the following will most likely lower Hong Kong’s geographical mobility of
labour?
A. The global outbreak of covid-19
B. The increase in Hong Kong’s unemployment rate
C. The temporary relaxation of the monthly threshold for the public transport fare
subsidy scheme
D. The launch of the Greater Bay Area Youth Employment Scheme (大灣區青年就業計
劃)

NSS Exploring Economics 5 © Pearson Education Asia Limited 2021

S4 Final Exam (2021 March) (Paper 1)
14. The following table shows the quantities of normal and high-quality Japanese rice sold in
Japan and Hong Kong. Assume the consumers’ preference for Japanese rice is similar in
both places.

Quantity of normal Quantity of high-quality

Japanese rice (units) Japanese rice (units)
Japan X Y
Hong Kong 80 60

Suppose the transportation cost of both types of Japanese rice from Japan to Hong Kong
is the same. Which of the following figures are consistent with the law of demand?
(1) X = 20; Y = 15
(2) X = 20; Y = 5
(3) X = 80; Y = 160
(4) X = 80; Y = 40
A. (1) and (2) only
B. (2) and (3) only
C. (2) and (4) only
D. (3) and (4) only

15. When the market demand curve of a good is derived, we assume that:
A. the market price is equal to marginal revenue.
B. the consumers’ preference remains unchanged.
C. the demand curve is downward sloping.
D. the supply of the good is increasing.

16. Suppose Good X and Good Y are substitutes. Which of the following can best illustrate
this relationship?
A. When the price of Good X increases, the demand for Good Y decreases.
B. When the supply curve of Good X shifts rightwards, the demand curve of Good Y
shifts leftwards.
C. When the demand for Good X increases, the demand for Good Y also increases.
D. When the supply of Good X increases, the supply of Good Y decreases.

NSS Exploring Economics 6 © Pearson Education Asia Limited 2021

S4 Final Exam (2021 March) (Paper 1)
17. The following shows the supply-demand diagram of delivery services. The initial
equilibrium point is E0.

Price ($)
S1
E2 S0
S2
E1 E0
E3

E4 D2
D0
D1
0 Quantity

Due to the covid-19 epidemic, more people are shopping online. In addition, more people
are working as couriers. The new equilibrium point will most likely be ______.
A. E1
B. E2
C. E3
D. E4

18. Both the quality and price of Vaccine A (produced by Country A) are higher than those of
Vaccine B (produced by Country B). Country C imports both vaccines. Which of the
situations would most likely raise Country C’s total expenditure on Vaccine A?
A. The per-unit transportation costs for both vaccines increase by the same percentage.
B. The per-unit transportation costs for both vaccines increase by the same amount.
C. It has been reported that the effectiveness of Vaccine B is lower than expected.
D. The supply of Vaccine A increases.

19. Suppose the market price and the quantity of covid-19 testing services provided in Hong
Kong changed by 10% and 1%, respectively, due to the increase in the number of
covid-19 testing providers. Based on the above information, we can conclude that: In
Hong Kong,
A. the supply of covid-19 testing services is elastic.
B. the supply of covid-19 testing services is inelastic.
C. the elasticity of demand for covid-19 testing services is equal to 0.1.
D. the elasticity of demand for covid-19 testing services is equal to 10.

NSS Exploring Economics 7 © Pearson Education Asia Limited 2021

S4 Final Exam (2021 March) (Paper 1)
20. Excellent School Limited provides online tutorial services. Under which of the following
conditions will the demand for its online tutorial services most likely become more
elastic?
A. More education centres provide online tutorial services.
B. The quality of its online tutorial services increases.
C. During to the covid-19 epidemic, students develop the habit of using online tutorial
services.
D. None of the above will make the demand become more elastic.

21. The following diagram shows Country A’s imported cheese market.
Price ($)

S1 S2
S0
E1
E3
E0
E4
E2
D
0 Quantity

Suppose the original market equilibrium is at E0. If the government imposes an effective
quota on imported cheese, at which of the following points will the new market
equilibrium most likely be?
A. E1
B. E2
C. E3
D. E4

NSS Exploring Economics 8 © Pearson Education Asia Limited 2021

S4 Final Exam (2021 March) (Paper 1)
The following table shows the original supply-demand schedules of cigarettes. Suppose the
number of cigarette factories increases. For every price, the quantity supplied of cigarettes
increases by 2 units. Answer Questions 22 and 23.

Price ($) Quantity demanded Quantity supplied

(units) (units)
51 9 5
52 8 6
53 7 7
54 6 8
55 5 9

22. If the government wants to keep the quantity transacted at its original level, which of the
following measures may be adopted?
(1) Imposing a unit tax of $2
(2) Providing a unit subsidy of $2
(3) Setting a price ceiling of $53
(4) Setting a price floor of $53
A. (1) and (3) only
B. (1) and (4) only
C. (2) and (3) only
D. (2) and (4) only

23. Based on the above table, which of the following statements is correct?
(1) Due to the increase in the number of cigarette factories, the total revenue increases.
(2) Within the range of the original and the new equilibrium prices, the demand for
cigarettes is elastic.
(3) Within the range of the original and the new equilibrium prices, the supply of
cigarettes is elastic.
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

NSS Exploring Economics 9 © Pearson Education Asia Limited 2021

S4 Final Exam (2021 March) (Paper 1)
24. Suppose Market H is a perfectly competitive market while Market G is an oligopolistic
market. Which of the following is INCORRECT?
Market H Market G
A. Sellers take the market price. Sellers set their own price.
B. Sellers have perfect information. Buyers have perfect information.
C. All sellers are price takers. A price leader exists.
D. Products must be homogeneous. Products can be heterogeneous.

25. Which of the following can illustrate the rationing function of price?
A. As average wage rates have increased in China, some companies have relocated their
factories from China to Vietnam.
B. To reduce the cost of production, a university in Hong Kong decides to produce its
covid-19 vaccine in the mainland instead of Hong Kong.
C. As the price of coal has increased in China, Mongolia has exported more coals to
China.
D. None of the above

26. Study the following diagram. Point e is the original equilibrium point. Suppose there is no
externality.
Price ($)

a
S = MC

e
P0

h D = MB
0 Quantity
Q0

Suppose the government sets an effective price floor. Which of the following statements
is correct?
A. The new consumer surplus will be smaller than Area aeP0.
B. The new total social surplus will be equal to Area aeh.
C. The producer surplus must increase.
D. The new price will be 1ower than P0.

NSS Exploring Economics 10 © Pearson Education Asia Limited 2021

S4 Final Exam (2021 March) (Paper 1)
27. Which of the following is an example of the divergence between private and social
benefits during the covid-19 epidemic?
A. A singer held free online concerts.
B. A supermarket offered a 10% discount.
C. A couple did not wear their face masks properly on a bus.
D. A teacher did housework at home.

28. When there is underproduction in a market, which of the following statement(s) is/are
INCORRECT?
(1) The marginal social benefit is smaller than the marginal social cost and so a
deadweight loss exists.
(2) The equilibrium price must be lower than the efficient price.
(3) Excess demand must exist.
A. (1) only
B. (1) and (2) only
C. (2) and (3) only
D. (1), (2) and (3)

29. Which of the following would most likely lower the degree of income inequality?
A. Race discrimination becomes more serious.
B. Firms are less willing to employ youths.
C. The government equalises the ownership of land and capital.
D. Artificial Intelligence is used more comprehensively.

NSS Exploring Economics 11 © Pearson Education Asia Limited 2021

S4 Final Exam (2021 March) (Paper 1)
30. Study the following Lorenz curves for City H.

100
Cumulative percentage of post-tax income

D
C

E
B

0 Cumulative percentage of households 100

Suppose City H’s original Lorenz curve is Curve E, and Curve C is a 45-degree line. The
government launches a new policy which effectively lowers the degree of income
inequality. Then, which of the following curves is most likely the new Lorenz curve?
A. Curve A
B. Curve B
C. Curve C
D. Curve D

END OF PAPER

NSS Exploring Economics 12 © Pearson Education Asia Limited 2021

S4 Final Exam (2021 March) (Paper 1)