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HKDSE Economics Paper 1 (Multiple Choice) Practice Paper | 45 questions, 45 marks, 45 minutes
HKDSE Economics Paper 1
HKDSE Economics Paper 1 practice paper: 45 multiple-choice questions in 45 minutes for 45 marks, with 15 questions each on microeconomics, macroeconomics and international trade and development, and a short explanation for every answer.
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Paper details Level: S6 (HKDSE) | Subject: Economics | Time: 45 minutes | Marks: 45 | Questions: 45
Section A — Microeconomics (15 marks)
1 mark each. Choose the best answer.
| # | Question | Answer and marking notes |
|---|---|---|
| 1 | Mrs Chan can earn $300 an hour tutoring, or watch a $80 film she values at $150. If she watches the film, what is her opportunity cost? A. $80 B. $150 C. $300 D. $380 | Answer: C | Opportunity cost is the value of the best forgone alternative, i.e. the $300 of forgone tutoring income; the ticket price is a money cost, not a forgone alternative. |
| 2 | An economy produces only rice and cloth; its PPF runs from (rice 200, cloth 0) to (rice 0, cloth 50). What is the opportunity cost of one more unit of cloth? A. 0.25 units of rice B. 4 units of rice C. 50 units of rice D. 200 units of rice | Answer: B | Opportunity cost = rice forgone divided by cloth gained = 200 / 50 = 4 units of rice. |
| 3 | The price of one brand of coffee rises. What happens to the demand for other brands? A. A movement up along the demand curve B. The demand curve shifts right C. The demand curve shifts left D. No change | Answer: B | Other brands are substitutes; a higher substitute price raises their demand, shifting the whole curve right. |
| 4 | A government sets a price ceiling below the equilibrium price. What is the most likely result? A. A shortage B. A surplus C. Equilibrium D. A fall in demand | Answer: A | Below equilibrium the quantity demanded exceeds the quantity supplied, so a shortage appears. |
| 5 | Price falls from $10 to $8 and quantity rises from 100 to 130. Which is correct? A. Revenue falls; demand is inelastic B. Revenue is unchanged C. Revenue rises; demand is elastic D. Revenue rises; demand is inelastic | Answer: C | Price falls 20% and quantity rises 30%, so elasticity is 1.5 (elastic); revenue rises from $1,000 to $1,040. |
| 6 | A $4 per unit subsidy to producers lowers the equilibrium price from $20 to $18. What share of the subsidy goes to buyers? A. 25% B. 50% C. 75% D. 100% | Answer: B | Buyers gain $2 out of the $4 subsidy, i.e. 50%; the rest goes to producers. |
| 7 | A factory discharges waste that harms nearby residents. With no government action, which is correct? A. Marginal social cost exceeds marginal private cost, so output is too high B. Marginal private cost exceeds marginal social cost C. Output is too low D. Social cost equals private cost | Answer: A | The external cost makes MSC exceed MPC, so market output is above the socially optimal level. |
| 8 | Public goods such as lighthouses tend to be under-supplied by the free market mainly because A. production cost is too high B. demand is too small C. non-rivalry and non-excludability allow free-riding D. the government bans private supply | Answer: C | Non-payers cannot be excluded, so everyone waits for others to pay and private supply falls short. |
| 9 | A monopolist faces a downward-sloping demand curve. Which must be true? A. Marginal revenue equals price B. Marginal revenue is below price C. Marginal revenue is above price D. Marginal revenue is zero | Answer: B | To sell more it must cut price on all units, so MR lies below price. |
| 10 | In the short run, adding a variable factor to a fixed factor eventually lowers marginal product. This is A. economies of scale B. diseconomies of scale C. gains from division of labour D. the law of diminishing marginal returns | Answer: D | With a fixed factor, the marginal product of the variable factor eventually falls; this is a short-run law. |
| 11 | A firm has total fixed cost $600 and total cost $1,500 at 30 units. What is average variable cost? A. $20 B. $25 C. $30 D. $50 | Answer: C | Total variable cost = 1,500 – 600 = 900; AVC = 900 / 30 = $30. |
| 12 | After a wage rise a worker works fewer hours. This shows A. the substitution effect exceeds the income effect B. only the substitution effect operates C. labour supply is perfectly inelastic D. the income effect exceeds the substitution effect | Answer: D | Fewer hours means the income effect (more leisure as income rises) outweighs the substitution effect. |
| 13 | A firm charges different prices in two markets. In the market with the less elastic demand it should charge A. a lower price B. a higher price C. the same price D. a price equal to marginal cost | Answer: B | Buyers there are less responsive to price, so a higher price raises profit. |
| 14 | A consumer is willing to pay $50 for a good but pays $30. Her consumer surplus is A. $20 B. $30 C. $50 D. $80 | Answer: A | Consumer surplus = willingness to pay minus price paid = 50 – 30 = $20. |
| 15 | When should a perfectly competitive firm shut down in the short run? A. When price is below average total cost B. When price is below average fixed cost C. When price is below average variable cost D. When price is below marginal cost | Answer: C | Below AVC, revenue does not even cover variable cost, so shutting down minimises loss. |
Section B — Macroeconomics (15 marks)
1 mark each. Choose the best answer.
| # | Question | Answer and marking notes |
|---|---|---|
| 16 | Which item is NOT included in GDP? A. Bread newly produced this year B. Social security payments C. Exported consultancy services D. An increase in inventories | Answer: B | Social security is a transfer payment with no corresponding production, so it is excluded from GDP. |
| 17 | Nominal GDP is $210 billion and the GDP deflator is 105. Real GDP is A. $199.5 billion B. $200 billion C. $210 billion D. $220.5 billion | Answer: B | Real GDP = nominal GDP / deflator x 100 = 2,100 / 105 x 100 = $200 billion at base-year prices. |
| 18 | Construction workers lose their jobs during the rainy season. This is A. seasonal unemployment B. structural unemployment C. cyclical unemployment D. frictional unemployment | Answer: A | Regular seasonal weather reduces demand for their work, so this is seasonal unemployment. |
| 19 | In the CPI food has weight 40% (index 120 to 132) and housing 60% (index stays 110). The new index is A. 121.0 B. 115.0 C. 118.8 D. 124.4 | Answer: C | Weighted index = 0.4 x 132 + 0.6 x 110 = 52.8 + 66 = 118.8. |
| 20 | The government sharply raises infrastructure spending. The aggregate demand curve will A. shift left B. shift right C. not shift, only a movement along it D. become vertical | Answer: B | Government spending is a component of aggregate demand, so AD shifts right. |
| 21 | The marginal propensity to consume is 0.75 and autonomous spending rises by $20 billion. Equilibrium output eventually rises by A. $15 billion B. $26.7 billion C. $60 billion D. $80 billion | Answer: D | Multiplier = 1 / (1 – 0.75) = 4; output rises by 4 x 20 = $80 billion. |
| 22 | In a recession the government cuts taxes and raises public spending. This is A. expansionary fiscal policy B. contractionary fiscal policy C. expansionary monetary policy D. contractionary monetary policy | Answer: A | Tax cuts and higher spending are fiscal tools used in an expansionary direction. |
| 23 | The banking system receives $1,000 of new deposits and the required reserve ratio is 20%. With no cash drain, the maximum total deposits are A. $1,200 B. $2,000 C. $5,000 D. $8,000 | Answer: C | Deposit multiplier = 1 / 0.2 = 5; maximum deposits = 1,000 x 5 = $5,000. |
| 24 | Demand-pull inflation is mainly caused by A. wage rises pushing up costs B. aggregate demand growing faster than productive capacity C. higher import prices D. a tax increase | Answer: B | Aggregate demand outruns the economy capacity, pulling prices up. |
| 25 | The short-run Phillips curve shows A. a positive link between inflation and growth B. a positive link between inflation and money supply C. a negative link between unemployment and productivity D. a negative link between inflation and unemployment | Answer: D | It shows a trade-off: lower unemployment comes with higher inflation in the short run. |
| 26 | Merchandise exports 600, imports 550, service exports 300, service imports 280, net income outflow 40, net current transfers inflow 10 (all in $ billion). The current account balance is A. a surplus of 40 B. a deficit of 40 C. a surplus of 70 D. a deficit of 10 | Answer: A | 600 – 550 + 300 – 280 – 40 + 10 = a surplus of 40. |
| 27 | Under the Linked Exchange Rate System, the USD/HKD convertibility band is about A. 7.50 to 7.60 B. 7.75 to 7.85 C. 7.80 to 8.00 D. 7.00 to 7.20 | Answer: B | The strong-side guarantee is 7.75 and the weak-side guarantee is 7.85. |
| 28 | Under a currency board, domestic interest rates in the long run A. are set entirely at home B. are always zero C. follow US interest rate movements D. float free of inflation | Answer: C | To hold the exchange rate, local rates must track US rates, so monetary policy is not independent. |
| 29 | The more bowed a Lorenz curve is, the more A. equal the income distribution B. rapid the growth C. numerous the poor D. unequal the income distribution | Answer: D | The further the curve lies from the diagonal, the more unequal the distribution. |
| 30 | Which is an automatic stabiliser? A. A large public works programme B. Unemployment benefits rising automatically in a slump C. A central bank change in the discount rate D. A one-off cash handout | Answer: B | Benefits move automatically with the cycle without new legislation, smoothing demand. |
Section C — International Trade and Development (15 marks)
1 mark each. Choose the best answer.
| # | Question | Answer and marking notes |
|---|---|---|
| 31 | In country A one unit of cloth costs 2 units of wine; in country B it costs 3. Which country has a comparative advantage in cloth? A. Country A B. Country B C. Neither D. Cannot tell | Answer: A | Country A gives up less wine per unit of cloth (2 against 3), so it has the comparative advantage. |
| 32 | A country imports 500 units and imposes a $4 per unit tariff. Tariff revenue is A. $125 B. $1,000 C. $2,000 D. $2,500 | Answer: C | Tariff revenue = 500 x 4 = $2,000. |
| 33 | Compared with a tariff, an import quota A. always gives the government revenue B. may let foreign exporters capture the quota rent C. does not limit import quantity D. always raises local consumer welfare | Answer: B | Under a quota the quota rent may accrue to foreign exporters, so the government may collect nothing. |
| 34 | The export price index is 120 and the import price index is 150. The terms of trade index is A. 130 B. 125 C. 90 D. 80 | Answer: D | Terms of trade = 120 / 150 x 100 = 80; below 100 means a deterioration. |
| 35 | The main function of the WTO is to A. reduce trade barriers among members B. provide development loans C. stabilise exchange rates D. harmonise tax rates | Answer: A | It cuts tariffs and non-tariff barriers through negotiation and dispute settlement. |
| 36 | A Hong Kong resident buys shares in a foreign company. In the balance of payments this is recorded as A. a debit in the current account B. a credit in the current account C. a financial account outflow D. an increase in official reserves | Answer: C | Buying a foreign asset is a capital outflow, recorded in the financial account. |
| 37 | With large capital inflows under the strong-side guarantee, the HKMA normally A. buys HKD and sells USD B. buys USD and sells HKD C. does nothing D. raises the reserve ratio | Answer: B | Inflows push HKD stronger, so the HKMA buys USD and sells HKD to hold the rate at or above 7.75. |
| 38 | Purchasing power parity says the long-run exchange rate is mainly determined by A. the interest rate gap B. the unemployment gap C. stock market performance D. relative price levels | Answer: D | PPP holds that the rate reflects the ratio of the two price levels in the long run. |
| 39 | The Human Development Index excludes A. life expectancy at birth B. mean years of schooling C. carbon emissions per head D. GNI per capita | Answer: C | HDI combines health, education and income; emissions are not part of it. |
| 40 | Foreign direct investment differs from portfolio investment mainly because FDI A. involves management control B. is always short term C. cannot cross borders D. is identical | Answer: A | FDI normally carries a significant equity stake and management involvement; portfolio flows are pure securities trading. |
| 41 | Economic growth differs from economic development because development A. is the same thing B. covers wider change such as living standards and distribution C. counts only farm output D. excludes income | Answer: B | Growth is a rise in real output; development also covers health, education, distribution and environment. |
| 42 | The short-run Phillips trade-off implies that in the long run a government A. can end both inflation and unemployment B. can always cut unemployment C. can permanently raise output by monetary policy D. can buy lower unemployment only temporarily | Answer: D | The long-run curve is vertical at the natural rate, so only inflation changes in the long run. |
| 43 | If two countries specialise by comparative advantage and trade, most likely A. total output falls B. only the larger country gains C. total output rises and both can gain D. prices must equalise exactly | Answer: C | Each produces what it sacrifices least to make, so total output rises and trade shares the gain. |
| 44 | A currency appreciates. The most direct effect is that A. exports become cheaper abroad B. imports become cheaper and exports less competitive C. both imports and exports become dearer D. trade is unaffected | Answer: B | Appreciation raises the foreign-currency price of exports and lowers the price of imports. |
| 45 | Government funding of vocational training to raise labour productivity is A. supply-side policy B. demand management C. income redistribution D. protectionism | Answer: A | Raising productivity expands aggregate supply, so it is a supply-side measure. |
A TutorZone practice paper; original questions and passages, not publisher material.
