HKDSE Economics Mock Paper (Data Response and Calculation)

HKDSE Economics Mock Paper (Data Response and Calculation) | 10 Questions, 100 Marks, 2.5 Hours

2026-11-01

HKDSE Economics

HKDSE Economics mock: 10 questions, 100 marks, 150 minutes, covering price elasticity and total revenue, comparative advantage and gains from trade, GDP, GNP and income per head, reserve ratios and the money multiplier, nominal versus real wages, progressive tax and effective rates, tariff revenue and deadweight loss, monopoly profit maximisation, unemployment and participation rates, and a Pigouvian tax discussion, with marking notes for every question.

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Paper details　Level: HKDSE (S6) | Subject: Economics | Time: 2 hours 30 minutes | Marks: 100 | Questions: 10

Section A (Questions 1 to 5, 50 marks)

Answer ALL questions. In calculations show the formula, the substitution and the unit, and give answers to the accuracy asked; in discussion questions state a position and support it with reasons.

#	Question	Answer and marking notes
1	A chocolate shop cuts its price from $20 to $18 per bar and sales rise from 100 to 120 bars a day. (a) Calculate the price elasticity of demand (absolute value, 1 decimal place). (b) Calculate total revenue before and after the price cut, and state the change. (c) Explain the condition under which a price cut is certain to raise total revenue.	Answer: (a) % change in price = (18-20)/20 = -10%; % change in quantity = (120-100)/100 = +20%; elasticity = 20%/10% = 2.0, elastic. (b) Revenue before = 20 x 100 = $2,000; after = 18 x 120 = $2,160; a rise of $160 (+8%). (c) A price cut raises total revenue only when demand is elastic (\|Ed\| greater than 1); with inelastic demand revenue falls, and with unit elasticity revenue is unchanged. Here \|Ed\| = 2.0, so the cut pays.
2	Factory A can produce at most 300 units of X or 150 units of Y a day with the same resources; Factory B can produce at most 240 units of X or 80 units of Y. (a) Find the opportunity cost of 1 unit of Y in terms of X for each factory. (b) State which good each factory should specialise in, with reasons. (c) If they trade at 1 Y for 2.5 X, calculate each factory’s gain in units of X and state the upper and lower limits of the terms of trade.	Answer: (a) A: 1 Y = 300/150 = 2 X; B: 1 Y = 240/80 = 3 X. (b) A has the lower opportunity cost of Y (2 is less than 3) and B the lower opportunity cost of X (1/3 is less than 1/2), so A specialises in Y and B in X according to comparative advantage. (c) A gives 1 Y for 2.5 X, gaining 0.5 X over self-production; B pays 2.5 X instead of 3 X, saving 0.5 X. The terms of trade lie between 2 X and 3 X per Y.
3	An economy records: private consumption 120.0 bn, gross domestic fixed capital formation 45.0 bn, government consumption 30.0 bn, exports of goods and services 90.0 bn, imports 78.0 bn, net factor income from abroad -4.0 bn, population 7.25 million. (a) Compute GDP by the expenditure approach. (b) Compute GNP and GNP per capita (to the nearest dollar). (c) Explain the gap between GDP and GNP and say which better reflects residents’ income.	Answer: (a) GDP = 120.0 + 45.0 + 30.0 + (90.0 – 78.0) = 207.0 bn. (b) GNP = 207.0 – 4.0 = 203.0 bn; GNP per capita = 203.0 bn / 7.25 m = $28,000. (c) The gap is net factor income from abroad: residents’ income earned abroad less foreigners’ income earned locally, here -4.0 bn. GNP uses residents as the unit and better reflects residents’ income; GDP uses territory and better measures local production.
4	A banking system has a required reserve ratio of 20% and initial excess reserves of $1.0 million (no cash leakage). (a) Compute the money multiplier and the maximum total deposits the system can create. (b) If the ratio is raised to 25%, compute the new maximum deposits and the contraction. (c) Name two other tools a central bank can use to tighten credit and briefly explain each.	Answer: (a) Multiplier = 1/0.20 = 5; maximum deposits = $1.0 m x 5 = $5.0 m. (b) New multiplier = 1/0.25 = 4; deposits = $4.0 m, a contraction of $1.0 m. (c) Open market operations: selling bonds drains reserves from banks; raising the discount or policy rate makes borrowing dearer and curbs credit demand. Both reduce banks’ ability to create deposits.
5	An employee’s nominal wage rises 8% in a year while the consumer price index rises from 108 to 118.8. (a) Compute the inflation rate. (b) Compute the percentage change in the real wage (2 decimal places). (c) Explain how the nominal wage can rise while the real wage falls, and the effect on living standards.	Answer: (a) Inflation = (118.8 – 108)/108 x 100% = 10.0%. (b) Real wage change = (1.08/1.10) – 1 = -1.82%, so the real wage falls by about 1.82%. (c) Prices rise faster than the nominal wage, so purchasing power falls; when wage adjustment lags prices the same money income buys less, lowering the living standard, other things equal.

Section B (Questions 6 to 10, 50 marks)

#	Question	Answer and marking notes
6	A progressive salary tax has four bands: first $50,000 at 2%, next $50,000 at 7%, third $50,000 at 12%, and the remainder at 17%. A taxpayer has assessable income of $200,000. (a) Compute the tax payable band by band. (b) Compute the effective (average) tax rate to 1 decimal place. (c) Explain the link between progression and marginal rates, and the effect on income distribution.	Answer: (a) 50,000 x 2% = 1,000; 50,000 x 7% = 3,500; 50,000 x 12% = 6,000; 50,000 x 17% = 8,500; total $19,000. (b) Effective rate = 19,000/200,000 = 9.5%. (c) Marginal rates rise with income (2% to 17%) while the average rate stays below the top marginal rate; higher earners pay a larger share, narrowing post-tax income gaps, though incentives to work and invest may weaken.
7	A monopolist faces demand P = 120 – 2Q and total cost TC = 200 + 20Q + Q^2. (a) Write the marginal revenue and marginal cost functions. (b) Find the profit-maximising output and price. (c) Compute total revenue, total cost and profit, and explain why the firm never produces where demand is inelastic.	Answer: (a) TR = 120Q – 2Q^2, so MR = 120 – 4Q; MC = dTC/dQ = 20 + 2Q. (b) MR = MC gives 120 – 4Q = 20 + 2Q, so Q = 25 and P = 70. (c) TR = 1,750; TC = 200 + 500 + 625 = 1,325; profit = 425. In the inelastic range extra output lowers revenue and raises cost, so profit must fall; the monopolist restricts output where MR = MC.
8	A small open economy has domestic demand Qd = 600 – 5P and domestic supply Qs = 5P – 100 (Q in thousands, P in dollars). The world price is $40 and a specific tariff of $8 per unit is imposed. (a) Compute free-trade domestic output, demand and imports. (b) Compute the domestic price, output, demand and imports after the tariff. (c) Compute tariff revenue and deadweight loss, and comment on the effect on consumers.	Answer: (a) At P = 40: Qd = 400, Qs = 100, imports 300 thousand. (b) Domestic price = 48: Qd = 360, Qs = 140, imports 220 thousand. (c) Revenue = 8 x 220 = 1,760 thousand; deadweight loss = 0.5 x 8 x (40 + 40) = 320 thousand. Consumers pay more and buy less, so consumer surplus falls; part is transferred to government and domestic producers, and 320 thousand is a net efficiency loss.
9	An economy has a population of 6.0 million, a labour force of 3.6 million and employment of 3.42 million. (a) Compute the number of unemployed and the unemployment rate (1 decimal place). (b) Compute the labour force participation rate. (c) Give two reasons why the unemployment rate may understate true joblessness, with an example each.	Answer: (a) Unemployed = 0.18 million; unemployment rate = 0.18/3.6 = 5.0%. (b) Participation rate = 3.6/6.0 = 60.0%. (c) Discouraged workers who stop job-hunting are outside the labour force, so they are not counted; underemployed part-timers wanting more hours count as employed though their income is inadequate. Both make the measured rate understate the true problem.
10	A chemical plant discharges waste. Its marginal private cost is MPC = 100 + 2Q, marginal external cost MEC = 40 per unit and marginal social benefit MSB = 500 – 2Q. (a) Write the marginal social cost function. (b) Find the unregulated market output and the socially optimal output. (c) Compute MSC at the optimum, the Pigouvian tax per unit and the deadweight loss without regulation; comment on the effectiveness and limits of the tax.	Answer: (a) MSC = MPC + MEC = 140 + 2Q. (b) Market output: 500 – 2Q = 100 + 2Q gives Q = 100; optimum: 500 – 2Q = 140 + 2Q gives Q = 90. (c) At Q = 90, MSC = 320; the tax equals MEC = 40 per unit; deadweight loss = 0.5 x 40 x 10 = 200. The tax internalises the external cost and cuts output to 90, removing the loss, but external cost is hard to measure and monitor and part of the tax may be passed to consumers.

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