HKDSE Economics Practice Paper: Micro And Macro Economics (12 Questions, 100 Marks, 75 Minutes)

HKDSE Economics Practice Paper: Micro and Macro Economics (12 questions, 100 marks, 75 minutes)

2026-11-04

HKDSE Economics: Micro and Macro Perspectives

Twelve questions on opportunity cost, elasticity, producer surplus, inflation, unemployment, deposit creation and comparative advantage, with full answers and marking points.

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Paper details　Level: S6 | Subject: Economics | Time: 75 minutes | Marks: 100 | Questions: 12

Section A (32 marks)

Multi-step calculations; show formula, substitution and unit.

#	Question	Answer and marking notes
1	Mr Chan used to earn $30,000 a month. He resigns to open a small shop with monthly rent of $25,000 and uses $600,000 of savings for renovation (annual interest rate 4%). (a) Find the monthly interest income he gives up. (b) Find his monthly opportunity cost of opening the shop, counting only the income given up above. (c) Should the rent be counted as opportunity cost? Explain.	(a) Monthly interest = 600,000 × 4% ÷ 12 = $2,000. [2] (b) Opportunity cost = $30,000 salary forgone + $2,000 interest forgone = $32,000. [3] (c) The rent is an explicit payment (accounting cost), not the value of a forgone alternative, so it is excluded under this definition; rent income forgone on an owned shop would count. [3]
2	The price of a good falls from $20 to $16 and quantity demanded rises from 500 to 600 units. (a) Find the price elasticity of demand using the arc formula. (b) State whether demand is elastic or inelastic. (c) Find total revenue before and after the price cut, and explain the consistency.	(a) % change in quantity = 100 ÷ 550 = 18.2%; % change in price = 4 ÷ 18 = 22.2%; Ed = 0.82. [4] (b) Ed = 0.82 is below 1, so demand is inelastic. [2] (c) Revenue before = $10,000; after = $9,600. Revenue falls, consistent with inelastic demand, where price and total revenue move in the same direction. [2]
3	Annual data of an economy ($ billion): private consumption 800, gross domestic fixed capital formation 250, government consumption 200, exports 400, imports 350. (a) Find GDP by the expenditure approach. (b) Find net exports. (c) Population is 5 million. Find GDP per capita in dollars.	(a) GDP = 800 + 250 + 200 + (400 − 350) = $1,300 billion. [4] (b) Net exports = $50 billion. [2] (c) GDP per capita = 1,300 × 10⁹ ÷ 5,000,000 = $260,000. [2]
4	The supply curve of a good is a straight line with price $20 at zero quantity. Equilibrium price is $50 and equilibrium quantity is 200 units. (a) Find the producer surplus. (b) Explain the meaning of producer surplus. (c) A specific tax of $10 per unit is imposed on producers. How does producer surplus change?	(a) Producer surplus = ½ × (50 − 20) × 200 = $3,000. [4] (b) Producer surplus is the sum of the differences between the price received and the minimum price (marginal cost) producers would accept; it measures their gain from trade. [2] (c) The tax shifts supply upward, raising price and lowering quantity, so producer surplus falls; part becomes tax revenue and part is deadweight loss. [2]

Section B (36 marks)

Analysis and calculation; explain with economic concepts.

#	Question	Answer and marking notes
5	The CPI basket of an economy cost $8,000 in the base year and $8,800 in the current year. (a) Find the CPI of the current year (base year = 100). (b) Find the inflation rate. (c) If nominal wages rose 6% over the same period, what happens to real wages?	(a) CPI = 8,800 ÷ 8,000 × 100 = 110. [3] (b) Inflation rate = (110 − 100) ÷ 100 = 10%. [3] (c) Nominal wages rise 6% while prices rise 10%, so real wages fall by about 3.6% (1.06 ÷ 1.10 − 1). [3]
6	The labour force of a place is 3.8 million and employment is 3.65 million. (a) Find the number of unemployed. (b) Find the unemployment rate. (c) If 50,000 unemployed people stop looking for work and leave the labour force, recalculate the unemployment rate.	(a) Unemployed = 3.80 − 3.65 = 0.15 million. [2] (b) Unemployment rate = 0.15 ÷ 3.8 = 3.9%. [3] (c) The unemployed fall to 0.10 million and the labour force to 3.75 million, so the rate is 0.10 ÷ 3.75 = 2.7%. [4]
7	Banks hold $50 million of excess reserves. The required reserve ratio is 20% and the public holds no cash. (a) Find the maximum total deposits the banking system can create. (b) Find the maximum increase in money supply. (c) Recalculate if the required reserve ratio rises to 25%.	(a) Deposit multiplier = 1 ÷ 0.2 = 5; maximum deposits = 50 × 5 = $250 million. [4] (b) Maximum increase in money supply = $250 million. [2] (c) New multiplier = 1 ÷ 0.25 = 4, so maximum deposit creation = 50 × 4 = $200 million. [3]
8	Production per unit of time: Country A can produce 10 units of X or 5 units of Y; Country B can produce 6 units of X or 6 units of Y. (a) Find the opportunity cost of 1 unit of X in each country. (b) Which country has a comparative advantage in X? (c) Explain how total output rises after specialisation.	(a) Country A: 1 X costs 5 ÷ 10 = 0.5 Y; Country B: 1 X costs 6 ÷ 6 = 1 Y. [4] (b) A has the lower opportunity cost of X (0.5 Y below 1 Y), so A has a comparative advantage in X and B in Y. [2] (c) Using one hour each: before specialisation 3 X and 3 Y each give 6 X + 6 Y; afterwards A makes 10 X and B makes 6 Y, so output rises by 4 units of X. [3]

Section C (32 marks)

Policy and diagram analysis; justify your reasoning.

#	Question	Answer and marking notes
9	A factory discharges waste water. Its marginal private cost is $40 and the marginal external cost is $15. The market quantity is 1,000 units while the efficient quantity is 800 units. (a) Find the marginal social cost. (b) Explain why the market quantity exceeds the efficient quantity. (c) Estimate the deadweight loss.	(a) Marginal social cost = 40 + 15 = $55. [2] (b) The firm counts only private cost and ignores harm to third parties, so output exceeds the level where marginal social cost equals marginal benefit. [3] (c) Deadweight loss is about ½ × 15 × (1,000 − 800) = $1,500. [3]
10	The equilibrium price of a good is $40 with quantity 180. A price ceiling of $30 is imposed, at which quantity demanded is 200 and quantity supplied is 140. (a) Find the shortage. (b) Explain the effect on resource allocation. (c) Suggest two non-price rationing methods that may appear.	(a) Shortage = 200 − 140 = 60 units. [3] (b) Price is below equilibrium, so quantity demanded exceeds supply and producers supply less; allocation is no longer guided by price, and queues, rationing or black markets may appear. [3] (c) First come first served queues, lotteries, ration coupons, allocation by personal connections. [2]
11	Autonomous expenditure in an economy rises by $20 billion and the marginal propensity to consume is 0.8. (a) Find the expenditure multiplier. (b) Find the maximum rise in equilibrium income. (c) If the marginal propensity to consume falls to 0.5, how do the multiplier and the change in income alter?	(a) Multiplier = 1 ÷ (1 − 0.8) = 5. [3] (b) Rise in income = 20 × 5 = $100 billion. [3] (c) New multiplier = 1 ÷ 0.5 = 2, so income rises by $40 billion and the multiplier effect is weaker. [3]
12	The Hong Kong dollar is linked to the US dollar at 7.8. A machine exported from Hong Kong sells locally for HK$780. (a) Find its US dollar price. (b) If inflation in Hong Kong exceeds that in the US, explain the effect on export competitiveness. (c) Under the linked exchange rate, which policy tool cannot be used independently, and why?	(a) US dollar price = 780 ÷ 7.8 = US$100. [3] (b) Hong Kong prices rise faster, so its exports become relatively more expensive abroad; competitiveness falls and exports may decline. [3] (c) Monetary policy cannot be used independently, because keeping the 7.8 link requires following US interest rates to prevent interest arbitrage flows. [2]

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