HKDSE Economics Paper 2 Practice Paper with Answers | 11 structured questions, 60 minutes, 100 marks

2026-10-29

Practice paper · HKDSE Economics Paper 2

HKDSE Economics Paper 2 practice paper: 11 structured questions on microeconomics, macroeconomics, comparative advantage, exchange rates and development indicators, 60 minutes, 100 marks, full worked answers and PDFs.

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Paper details　Level: S6 (HKDSE) | Subject: Economics (Paper 2) | Time: 60 minutes | Total: 100 marks | Questions: 11

Section A: Microeconomics (32 marks)

Section A: Microeconomics. Answer all questions; show all working and units. Each question carries 8 marks.

#	Question	Answer and marking notes
1	Chan has 2 hours free after school. A tutoring centre would pay him $180 per hour. He chooses to watch a film costing $90 and also buys $40 of snacks. (a) In money terms, what is the opportunity cost of watching the film? (3 marks) (b) How does the opportunity cost change if he gives up the snacks? (2 marks) (c) If no job were available in those 2 hours, would the opportunity cost differ? Explain. (3 marks)	(a) Opportunity cost is the value of the best forgone alternative: wage income + ticket + snacks = 180 x 2 + 90 + 40 = $490. (3 marks: 1 for each of the three components, 1 for the correct total) (b) It falls by $40, i.e. $490 – $40 = $450, because the snacks are no longer a forgone option. (2 marks) (c) Yes. Only the highest-valued forgone option counts; with no job available he forgoes leisure, whose money value is below $490 (possibly zero), so the opportunity cost drops to the ticket (and snacks). (3 marks: 1 for “only the best alternative counts”, 1 for the lower value of leisure, 1 for the conclusion)
2	The demand and supply functions of a market are Qd = 240 – 6P and Qs = 8P – 40 (price in dollars, quantity in thousand units). (a) Find the equilibrium price and quantity. (3 marks) (b) Compute the consumer surplus and producer surplus at equilibrium. (3 marks) (c) If the government sets a price ceiling of $15, what happens in the market? State one consequence. (2 marks)	(a) Set Qd = Qs: 240 – 6P = 8P – 40, so 14P = 280 and P = $20; then Q = 240 – 6 x 20 = 120 thousand units. (3 marks) (b) The demand curve meets the price axis at $40 and the supply curve at $5. Consumer surplus = 0.5 x 120 x (40 – 20) = 1200; producer surplus = 0.5 x 120 x (20 – 5) = 900. (3 marks: 1.5 each) (c) A ceiling of $15 is below the equilibrium price of $20, so a shortage (excess demand) appears: Qd = 150 and Qs = 80 thousand units, a shortage of 70 thousand units. Consequence: queues, rationing or black markets, and price no longer allocates the good. (2 marks)
3	A cinema raises its ticket price from $50 to $55 and attendance falls from 200 to 170 people. (a) Using the simple percentage method, find the price elasticity of demand (absolute value) and state whether demand is elastic or inelastic. (4 marks) (b) Compute total revenue before and after the increase, and explain whether the result is consistent with your answer in (a). (3 marks) (c) To raise total revenue, should the cinema raise or cut the price? Why? (1 mark)	(a) Percentage change in price = (55 – 50) / 50 x 100% = +10%; percentage change in quantity = (170 – 200) / 200 x 100% = -15%. Elasticity = \|-15% / 10%\| = 1.5. Since it exceeds 1, demand is elastic. (4 marks: 1 per percentage change, 1 for the formula, 1 for the conclusion) (b) Before: $50 x 200 = $10000; after: $55 x 170 = $9350; revenue falls by $650. This is consistent with (a): with elastic demand a price rise cuts quantity proportionately more, so revenue falls. (3 marks) (c) Cut the price. With elastic demand the quantity gain outweighs the lower price, so revenue rises. (1 mark)
4	Market demand is Qd = 100 – 2P and supply is Qs = 20 + 2P. The government levies a per-unit tax of $6 on sellers. (a) Find the equilibrium price and quantity before the tax. (2 marks) (b) Find the market price, the price sellers keep and the quantity traded after the tax. (3 marks) (c) How much tax per unit is borne by consumers and by producers? Compute the tax revenue and the deadweight loss. (3 marks)	(a) 100 – 2P = 20 + 2P, so P = $20 and Q = 60. (2 marks) (b) Effective supply becomes Qs = 20 + 2(P – 6). Solving 100 – 2P = 20 + 2P – 12 gives P = $23 (price paid by buyers); sellers keep $23 – $6 = $17; Q = 54. (3 marks) (c) Consumers bear $23 – $20 = $3; producers bear $20 – $17 = $3. Tax revenue = $6 x 54 = $324. Deadweight loss = 0.5 x (60 – 54) x $6 = $18. (3 marks: 1 for the split, 1 for revenue, 1 for deadweight loss)

Section B: Macroeconomics (32 marks)

Section B: Macroeconomics. Answer all questions; show all working and units. Each question carries 8 marks.

#	Question	Answer and marking notes
5	An economy records (in $100 million): private consumption 1200, private investment 380, government spending 300, exports 620, imports 560. Residents earn 90 of factor income abroad and non-residents earn 60 of factor income locally. (a) Compute GDP by the expenditure approach. (3 marks) (b) Compute GNP. (3 marks) (c) Why do GDP and GNP differ? (2 marks)	(a) GDP = C + I + G + X – M = 1200 + 380 + 300 + 620 – 560 = 1940 ($100 million). (3 marks: 1 for the formula, 1 for net exports, 1 for the answer) (b) Net factor income from abroad = 90 – 60 = 30, so GNP = 1940 + 30 = 1970 ($100 million). (3 marks) (c) GDP is defined by territory — output produced locally; GNP is defined by residency — income earned by residents anywhere. The difference is net factor income from abroad. (2 marks)
6	Nominal GDP rises 8% in a year, the GDP deflator rises 5% and the population rises 2%. (a) Compute the growth rate of real GDP. (3 marks) (b) Compute the growth rate of real GDP per capita. (3 marks) (c) What could make nominal GDP rise while real GDP falls? (2 marks)	(a) Real growth = (1 + 0.08) / (1 + 0.05) – 1 = 0.0286, about 2.9%. (3 marks: 2 for deflating, 1 for the answer; simply subtracting 8% – 5% = 3% earns 1 mark) (b) Per-capita growth = (1 + 0.0286) / (1 + 0.01) – 1 = 0.0134, about 1.3%. (3 marks) (c) Prices rise faster than output, so nominal GDP can rise while real GDP falls — the nominal figure is inflated by prices. (2 marks)
7	Banks in an economy hold total deposits of 500 ($100 million) with a required reserve ratio of 20%; the public holds no cash. (a) Find the bank multiplier and the theoretical maximum money supply. (3 marks) (b) If the required reserve ratio rises to 25%, by how much can the money supply fall? (3 marks) (c) Give two reasons why the actual money supply is normally below the theoretical maximum. (2 marks)	(a) Bank multiplier = 1 / required reserve ratio = 1 / 0.20 = 5; maximum money supply = 500 x 5 = 2500 ($100 million). (3 marks) (b) New multiplier = 1 / 0.25 = 4; new money supply = 500 x 4 = 2000; the fall is 2500 – 2000 = 500 ($100 million). (3 marks) (c) Banks hold excess reserves instead of lending; borrowers are unwilling to borrow; the public holds cash (leakage). (2 marks: any two, 1 each)
8	The marginal propensity to consume is 0.75 and the government raises spending by 80 ($100 million). CPI weights and price rises are: food 40% (up 20%), housing 35% (up 5%), transport 25% (up 10%). (a) Find the government spending multiplier and the change in equilibrium output. (3 marks) (b) If the marginal propensity to consume fell to 0.60, what would the multiplier and the output change be? (2 marks) (c) Compute the rise in the CPI by the weighted-average method. (3 marks)	(a) Multiplier = 1 / (1 – 0.75) = 4.0; change in output = 80 x 4.0 = 320 ($100 million). (3 marks: 1 formula, 1 multiplier, 1 answer) (b) Multiplier = 1 / (1 – 0.60) = 2.5; change in output = 80 x 2.5 = 200 ($100 million). (2 marks) (c) Weighted rise = 0.40 x 20% + 0.35 x 5% + 0.25 x 10% = 8.00% + 1.75% + 2.50% = 12.25%. (3 marks: 1 per component)

Section C: International Trade and Development (36 marks)

Section C: International trade and development. Answer all questions, with both calculation and written explanation. Each question carries 12 marks.

#	Question	Answer and marking notes
9	Hours needed per unit in country A and country B are: A — clothing 2, food 4; B — clothing 6, food 3. (a) Compute the opportunity cost of one unit of clothing and of one unit of food in each country. (4 marks) (b) State each country’s comparative advantage and who has the absolute advantage. (4 marks) (c) If they specialise by comparative advantage and trade 1 clothing for 1 food, show why both gain. (4 marks)	(a) Country A: 1 clothing = 2 / 4 = 0.5 food; 1 food = 4 / 2 = 2 clothing. Country B: 1 clothing = 6 / 3 = 2 food; 1 food = 3 / 6 = 0.5 clothing. (4 marks: 1 each) (b) A has a comparative advantage in clothing (0.5 food forgone, against 2 in B); B has a comparative advantage in food (0.5 clothing forgone, against 2 in A). Absolute advantage: A in clothing (2 < 6 hours), B in food (3 < 4 hours). (4 marks) (c) Producing 1 food domestically costs A 2 clothing, but trade costs only 1 clothing, a saving of 1. Producing 1 clothing domestically costs B 2 food, but trade costs only 1 food, a saving of 1. Both gain at 1:1, and total output rises. (4 marks: 1.5 each country, 1 for total output)
10	The exchange rate moves from 1 HKD = 15.0 JPY to 1 HKD = 18.0 JPY. A Hong Kong good sells for $200 and a Japanese good sells for 3600 yen. (a) Compute the percentage change in the HKD and state whether it is an appreciation or a depreciation. (2 marks) (b) Compute the change in the yen price of the Hong Kong good in Japan. (3 marks) (c) Compute the change in the HK dollar price of the Japanese good in Hong Kong. (3 marks) (d) Using (b) and (c), explain the effect of the appreciation on Hong Kong’s exports and imports. (4 marks)	(a) Change = (18.0 – 15.0) / 15.0 x 100% = +20%. The same amount of HKD buys more yen, so the HKD has appreciated. (2 marks) (b) Before: $200 x 15.0 = 3000 yen; after: $200 x 18.0 = 3600 yen — up 600 yen (+20%). Japanese buyers pay more, so the Hong Kong good becomes dearer there. (3 marks) (c) Before: 3600 / 15.0 = $240; after: 3600 / 18.0 = $200 — down $40 (-16.7%). The Japanese good becomes cheaper in Hong Kong. (3 marks) (d) Exports: Hong Kong goods cost more abroad, competitiveness falls, so export volume tends to fall. Imports: Japanese goods are cheaper in Hong Kong, so imports rise. (4 marks: 2 each)
11	Real GDP rises from 1000 to 1080 ($100 million) while population rises from 500 million to 520 million; the Gini coefficient rises from 0.42 to 0.46. (a) Compute the change in real GDP per capita, in dollars and in percentage terms. (4 marks) (b) Per-capita income rises while the Gini coefficient also rises. Is this a contradiction? Explain. (4 marks) (c) Apart from GDP per capita, name two development indicators and one limitation of each. (4 marks)	(a) Real GDP per capita: initially 1000 / 500 = $20000; finally 1080 / 520 = $20769.23. Change = $20769.23 – $20000 = $769.23, i.e. +3.85% (about +3.8%). (4 marks: 1 per level, 1 for the difference, 1 for the percentage) (b) No. GDP per capita is an average, while the Gini coefficient measures how evenly income is distributed; if high earners gain faster, the average can rise while distribution worsens and the Gini coefficient rises. (4 marks: 2 for the average/distribution distinction, 2 for the illustration) (c) Any two, e.g. (i) literacy rate or mean years of schooling — says nothing about quality; (ii) life expectancy — says nothing about living quality or the environment; (iii) HDI — its three components carry equal weights, which is arbitrary, and it ignores distribution and environmental cost. (4 marks: 1 per indicator, 1 per limitation)

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