Secondary 5 Economics Practice Paper: Demand And Supply, Price Elasticity, Cost And Market Structure, National Income, Money And Banking, Inflation And Exchange Rates

Secondary 5 Economics Practice Paper: Demand and Supply, Price Elasticity, Cost and Market Structure, National Income, Money and Banking, Inflation and Exchange Rates

2026-11-13

Economics – Secondary 5 – Practice Paper

S5 economics paper: demand and supply, elasticity, costs, market power, GDP, money, CPI, exchange rates. 6 sections, 24 parts, 100 marks, 60 minutes.

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Paper details　S5 economics practice paper with 24 parts on demand and supply, price elasticity, market structure, GDP, money supply, CPI and exchange rates; answers included.

Section A: Demand, Supply and Price Elasticity (16 marks)

Data 1: in a market, demand is Qd = 120 – 3P and supply is Qs = 30 + 2P, price in dollars.

#	Question	Answer and marking notes
1	(a) Find the equilibrium price and quantity.	Answer: set Qd = Qs: 120 – 3P = 30 + 2P, 5P = 90, P = 18; Q = 30 + 2(18) = 66 units. (Marking: equating 1, solving 2, units 1)
2	(b) If price rises from 18 to 20 and quantity demanded falls from 66 to 60 units, find the price elasticity of demand by the arc method (absolute value, 2 d.p.).	Answer: quantity change = (60 – 66) / 66 x 100% = -9.09%; price change = (20 – 18) / 18 x 100% = 11.11%; elasticity = 9.09 / 11.11 = 0.8. Demand is inelastic. (Marking: each percentage 1, division 1, conclusion 1)
3	(c) At equilibrium the demand curve meets the price axis at 40. Find the consumer surplus.	Answer: consumer surplus = 0.5 x (40 – 18) x 66 = 726 dollars. (Marking: triangle 1, base and height 1 each, arithmetic 1)
4	(d) The government sets a price ceiling of 15. Find quantity supplied, quantity demanded and the shortage.	Answer: Qs = 30 + 2(15) = 60 units; Qd = 120 – 3(15) = 75 units; shortage = 75 – 60 = 15 units. (Marking: each equation 1, shortage 2)

Section B: Cost, Market Structure and Pricing (16 marks)

Data 2: a firm has total cost TC = 200 + 10Q + 0.5Q^2, where Q is output; marginal cost MC = 10 + Q.

#	Question	Answer and marking notes
5	(a) At output 20 units, find total cost, average cost and marginal cost.	Answer: TC = 200 + 200 + 200 = 600; AC = 600 / 20 = 30; MC = 10 + 20 = 30. (Marking: TC 1, AC 1, MC 2)
6	(b) If the market is perfectly competitive and price is 40, find the profit maximising output and the profit.	Answer: P = MC gives 10 + Q = 40, Q = 30; TR = 40 x 30 = 1,200; TC = 200 + 300 + 450 = 950; profit = 1,200 – 950 = 250. (Marking: condition 1, output 1, cost 1, profit 1)
7	(c) If the market is a monopoly with demand P = 100 – 2Q and constant marginal cost 20 (MR = 100 – 4Q), find the profit maximising output and price.	Answer: MR = MC gives 100 – 4Q = 20, Q = 20; P = 100 – 2(20) = 60. (Marking: MR 1, equation 1, output 1, price 1)
8	(d) Five firms hold market shares of 40%, 25%, 15%, 10% and 10%. Find the Herfindahl index (HHI).	Answer: HHI = 40^2 + 25^2 + 15^2 + 10^2 + 10^2 = 1600 + 625 + 225 + 100 + 100 = 2,650. (Marking: squares 2, sum 1, answer 1)

Section C: National Income and GDP (18 marks)

Data 3: one year of data for an economy (in billions): consumption 800, investment 200, government spending 250, exports 300, imports 350; net factor income -40.

#	Question	Answer and marking notes
9	(a) Using the expenditure approach, find GDP and net exports.	Answer: GDP = 800 + 200 + 250 + 300 – 350 = 1,200 billion; net exports = 300 – 350 = -50 billion. (Marking: sum 2, deduct imports 2, net exports 2)
10	(b) Find gross national product (GNP).	Answer: GNP = GDP + net factor income = 1200 + (-40) = 1,160 billion. (Marking: formula 2, arithmetic 2)
11	(c) If nominal GDP is 1320 billion and the GDP deflator is 110, find real GDP.	Answer: real GDP = 1320 / 110 x 100 = 1,200 billion. (Marking: formula 2, arithmetic 2)
12	(d) If population is 6 million, find GDP per capita.	Answer: GDP per capita = 1200 billion / 6 million = 20,000 dollars. (Marking: conversion 2, arithmetic 2)

Section D: Money, Banking and Interest Rates (16 marks)

Data 4: the required reserve ratio is 25% and the central bank injects 80 billion of new reserves; the system holds 200 billion cash and 300 billion demand deposits.

#	Question	Answer and marking notes
13	(a) Find the deposit multiplier and the total new deposits created.	Answer: multiplier = 1 / 0.25 = 4; new deposits = 80 x 4 = 320 billion. (Marking: multiplier 2, product 2)
14	(b) Find the M1 money supply.	Answer: M1 = cash 200 + demand deposits 300 = 500 billion. (Marking: definition 2, arithmetic 2)
15	(c) If velocity is 6 and the price level is 1.5, use MV = PY to find real output.	Answer: MV = 500 x 6 = 3,000; Y = 3,000 / 1.5 = 2,000. (Marking: MV 2, Y 2)
16	(d) A perpetual bond pays 5 dollars a year and the market rate is 4%. Find the bond price.	Answer: price = 5 / 0.04 = 125 dollars. (Marking: formula 2, arithmetic 2)

Section E: Inflation, Unemployment and Real Variables (18 marks)

Data 5: the CPI basket holds 10 units of good A and 5 units of good B; base year prices are 5 and 8, current year prices are 6 and 9.

#	Question	Answer and marking notes
17	(a) Find basket spending in both years, the current CPI (base year = 100) and the inflation rate.	Answer: base spending = 10 x 5 + 5 x 8 = 90; current spending = 10 x 6 + 5 x 9 = 105; CPI = 105 / 90 x 100 = 116.7; inflation = (105 – 90) / 90 x 100% = 16.7%. (Marking: each year 2, CPI 1, inflation 1)
18	(b) The nominal rate is 7% and inflation is 3%. Find the real interest rate exactly (2 d.p.).	Answer: real rate = (1.07 / 1.03 – 1) x 100% = 3.9%. (Marking: formula 2, arithmetic 2)
19	(c) Labour force is 4 million, unemployment 0.2 million and population aged 15+ is 5 million. Find the unemployment rate and the participation rate.	Answer: unemployment rate = 20 / 400 x 100% = 5%; participation rate = 400 / 500 x 100% = 80%. (Marking: 2 each)
20	(d) Wages grow 6% and productivity grows 2%. Find unit labour cost inflation.	Answer: unit labour cost inflation = 6% – 2% = 4%. (Marking: concept 2, arithmetic 2)

Section F: International Trade and Exchange Rates (16 marks)

Data 6: the dollar rate moves from 7.8 to 7.5 Hong Kong dollars per US dollar; the export price index is 120 and the import price index is 150.

#	Question	Answer and marking notes
21	(a) Find the appreciation of the Hong Kong dollar against the US dollar (2 d.p.).	Answer: appreciation = (7.8 – 7.5) / 7.8 x 100% = 3.8%. (Marking: direction 2, arithmetic 2)
22	(b) A good priced at 780 Hong Kong dollars is worth how many US dollars under each rate?	Answer: at 7.8: 780 / 7.8 = 100 US dollars; at 7.5: 780 / 7.5 = 104 US dollars. (Marking: 2 each)
23	(c) An imported good is priced at 100 and a 15% ad valorem tariff applies. Find the tariff and the post-tariff price.	Answer: tariff = 100 x 15% = 15; post-tariff price = 100 + 15 = 115. (Marking: tariff 2, price 2)
24	(d) Find the terms of trade index and state whether it has improved or worsened.	Answer: terms of trade = 120 / 150 x 100 = 80; below 100 means the terms of trade worsened by 20%. (Marking: calculation 2, judgement 2)

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