S5 Economics Paper: Equilibrium, Elasticity, Break-even, Market Concentration And Exchange Rate (100 Marks)

S5 Economics Paper: Equilibrium, Elasticity, Break-even, Market Concentration and Exchange Rate (100 marks)

2026-11-13

S5 Economics – micro and macro basics

S5 Economics paper: 6 questions, 24 parts, 100 marks, 60 minutes; covering equilibrium, price ceilings, elasticity, break-even, market concentration and real GDP.

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Paper details　S5 Economics practice paper with six questions on equilibrium price and quantity, a price ceiling shortage, price elasticity and total revenue, break-even sales, market concentration, real GDP and exchange rate exposure; every figure is calculated.

Part A: Demand, supply and a price ceiling (16 marks)

Demand is Qd = 120 – 4P and supply is Qs = 6P – 40, with price in dollars and quantity in units. The government then considers a price ceiling of 12 dollars.

#	Question	Answer and marking notes
1	(a) Find the equilibrium price and quantity.	Answer: Set Qd = Qs, so 120 – 4P = 6P – 40 and 160 = 10P. Equilibrium price is 16.00 dollars and quantity is 56.00 units.
2	(b) With a ceiling of 12 dollars, find the shortage.	Answer: At the ceiling Qd is 72.00 units and Qs is 32.00 units, so the shortage is 40.00 units.
3	(c) If demand rises to Qd = 140 – 4P with supply unchanged, find the new equilibrium.	Answer: 140 – 4P = 6P – 40 gives 180 = 10P, so the new price is 18.00 dollars and quantity is 68.00 units.
4	(d) Calculate the percentage change in total revenue from (a) to (c).	Answer: Revenue rises from 896.00 to 1,224.00 dollars, a change of 36.61 percent.

Part B: Price elasticity and total revenue (16 marks)

The price of a product falls from 40 to 32 dollars and demand rises from 500 to 640 units. The seller then considers cutting the price again to 25.6 dollars.

#	Question	Answer and marking notes
5	(a) Calculate the percentage changes in price and in quantity demanded.	Answer: Price changes by -20.00 percent and quantity demanded by 28.00 percent.
6	(b) Use the arc method to find the price elasticity, then classify it.	Answer: Elasticity equals 28.00 divided by 20.00, which is 1.40, above one, so demand is elastic.
7	(c) Compare total revenue at the two prices and state whether it matches the elasticity in (b).	Answer: Revenue rises from 20,000.00 to 20,480.00 dollars, an increase of 480.00 dollars, which matches the elastic finding.
8	(d) If the price falls to 25.6 dollars and revenue must stay at the level in (c), find the quantity needed.	Answer: The quantity needed is 20,480.00 divided by 25.60, which is 800.00 units, that is 160 units more than 640.

Part C: Costs, contribution and break-even (16 marks)

A factory has fixed costs of 120,000 dollars, variable cost of 45 dollars per unit and a selling price of 75 dollars. Management sets a profit target.

#	Question	Answer and marking notes
9	(a) Calculate the contribution per unit.	Answer: Contribution equals price minus variable cost, 75 minus 45, which is 30.00 dollars.
10	(b) Calculate the break-even quantity.	Answer: Break-even quantity equals fixed costs divided by contribution, 120,000 divided by 30.00, which is 4,000.00 units.
11	(c) If the profit target is 60,000 dollars, find the quantity required.	Answer: Quantity equals 180,000 divided by 30.00, which is 6,000.00 units.
12	(d) If variable cost rises to 51 dollars, find the new break-even quantity and its rise over (b).	Answer: New contribution is 24.00 dollars, so break-even is 5,000.00 units, a rise of 25.00 percent.

Part D: Market structure and concentration (16 marks)

An industry has four firms with market shares of 40, 25, 20 and 15 percent. The two largest firms then merge.

#	Question	Answer and marking notes
13	(a) Calculate the pre-merger concentration using the HHI.	Answer: HHI equals 1,600 plus 625 plus 400 plus 225, which is 2,850.00.
14	(b) Calculate the post-merger HHI and its percentage rise.	Answer: Shares become 65, 20 and 15 percent, so HHI is 4,850.00, a rise of 70.18 percent.
15	(c) Calculate CR4 and CR2 before the merger.	Answer: CR4 is 100.00 percent and CR2 is 65.00 percent.
16	(d) Explain why the HHI shows this change better than CR4 here.	Answer: CR4 stays at 100 percent before and after the merger, so it shows nothing. The HHI squares each share, and merging 40 and 25 percent into 65 percent lifts it from 2,850.00 to 4,850.00, so it reflects the rise in concentration.

Part E: Nominal GDP, real GDP and output per head (18 marks)

Nominal GDP of an economy rises from 300 billion to 330 billion dollars while the price index rises from 120 to 132. Population is 7.5 million.

#	Question	Answer and marking notes
17	(a) Calculate the percentage rise in nominal GDP.	Answer: The rise is (3,300 – 3,000) divided by 3,000, which is 10.00 percent.
18	(b) Using the price index as deflator, find real GDP in both years.	Answer: Real GDP is 2,500.00 billion in the first year and 2,500.00 billion in the second year.
19	(c) Find the real growth rate and explain the gap with the nominal figure.	Answer: Real growth is 0.00 percent; the whole nominal rise of 10.00 percent comes from prices rising 10 percent, since 132 divided by 120 is 1.10.
20	(d) Calculate real GDP per head in the second year, in dollars.	Answer: Real GDP per head is 2,500.00 billion divided by 7.5 million people, which is 33,333.33 dollars.

Part F: Exchange rate change and export competitiveness (18 marks)

An export good costs 780 Hong Kong dollars to make, and 40 percent of that is imported material. The exchange rate moves from 0.128 to 0.118 US dollars per Hong Kong dollar.

#	Question	Answer and marking notes
21	(a) Find the US dollar price at the original rate.	Answer: The price is 780 times 0.128, which is 99.84 US dollars.
22	(b) Find the price at the new rate and the percentage fall.	Answer: The new price is 92.04 dollars, a fall of -7.81 percent.
23	(c) Find the Hong Kong dollar cost of imported material after the depreciation, and the total cost.	Answer: Imported material costs 312.00 dollars, that is 39.94 US dollars, which becomes 338.44 Hong Kong dollars. Total cost is 806.44 Hong Kong dollars.
24	(d) Recalculate the US dollar price from the new cost and judge whether competitiveness still improves.	Answer: The price becomes 95.16 dollars, still 4.69 percent below the original 99.84 dollars, so competitiveness still improves.

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