Secondary 5 Economics Practice Paper: Demand, Supply and Equilibrium, Elasticity and Revenue, Costs and Firm Decisions, Market Structure and Monopoly Pricing, National Income and Price Level, Money, Banking and Trade

2026-11-13

Economics – Secondary 5 – Practice Paper

S5 Economics: equilibrium, elasticity, costs, monopoly pricing, income multiplier, GDP deflator, reserve ratio, trade balance. 24 parts, 100 marks.

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Paper details　S5 Economics practice paper with 24 parts on demand and supply equilibrium, price ceilings and floors, consumer surplus, price and income elasticity, short-run costs, monopoly pricing, national income multiplier, GDP deflator, reserve ratio and exchange rate effects; full answers and marking points included.

Section A: Demand, Supply and Equilibrium (16 marks)

Data 1: in a market the demand function is Qd = 240 – 4P and the supply function is Qs = 6P – 60, where Q is quantity in units and P is price in dollars.

#	Question	Answer and marking notes
1	(a) Find the equilibrium price and quantity.	Answer: set Qd = Qs, 240 – 4P = 6P – 60, so 10P = 300 and P = 30; Q = 240 – 120 = 120. (Marking: equation 1, price 2, quantity 1)
2	(b) If the government sets a price ceiling of 24 per unit, find the shortage.	Answer: Qd = 144, Qs = 84, shortage = 144 – 84 = 60. (Marking: Qd 1, Qs 1, difference 2)
3	(c) If the government sets a price floor of 36 per unit, find the surplus.	Answer: Qd = 96, Qs = 156, surplus = 156 – 96 = 60. (Marking: Qd 1, Qs 1, difference 2)
4	(d) Find the consumer surplus at equilibrium.	Answer: P = 60 when Qd is zero; consumer surplus = (60 – 30) x 120 / 2 = 1,800. (Marking: intercept 1, formula 2, answer 1)

Section B: Elasticity and Revenue (16 marks)

Data 2: the price of a good falls from 40 to 30 while quantity demanded rises from 80 to 120.

#	Question	Answer and marking notes
5	(a) Using the initial-value method, find the price elasticity of demand (absolute value).	Answer: quantity change = (120 – 80) / 80 = 50 per cent; price change = (30 – 40) / 40 = -25 per cent; elasticity = 50 / 25 = 2. (Marking: each percentage 1, division 2)
6	(b) Find total revenue before and after the price cut, and link it to the size of elasticity.	Answer: revenue before = 3,200; after = 3,600; revenue rises by 400, which matches an elasticity greater than 1. (Marking: each revenue 1, change 1, link 1)
7	(c) Income rises from 20,000 to 22,000 and quantity falls from 120 to 108. Find the income elasticity and classify the good.	Answer: income change +10 per cent; quantity change -10 per cent; income elasticity = -1, negative, so it is an inferior good. (Marking: each percentage 1, elasticity and class 2)
8	(d) A substitute rises 10 per cent in price and demand for this good rises 6 per cent. Find the cross elasticity and classify the two goods.	Answer: cross elasticity = 6 / 10 = 0.60, positive, so the goods are substitutes. (Marking: formula 2, value 1, class 1)

Section C: Costs and Firm Decisions (18 marks)

Data 3: a firm has total fixed cost 600, constant average variable cost 15 per unit and sells at 45 per unit.

#	Question	Answer and marking notes
9	(a) At output 40, find total cost and average cost.	Answer: total cost = 600 + 15 x 40 = 1,200; average cost = 1,200 / 40 = 30. (Marking: total cost 3, average cost 2)
10	(b) At output 60, find total revenue, total cost and profit.	Answer: revenue = 45 x 60 = 2,700; total cost = 600 + 900 = 1,500; profit = 1,200. (Marking: revenue 2, cost 2, profit 1)
11	(c) At output 60, find average fixed cost, average variable cost and average cost.	Answer: average fixed cost = 600 / 60 = 10; average variable cost = 15; average cost = 25. (Marking: each item 1, cross-check with total cost 1)
12	(d) If the price falls to 24 while output stays at 60, find the profit and decide whether to shut down in the short run.	Answer: revenue = 24 x 60 = 1,440; total cost = 1,500; profit = -60, a loss of 60; revenue 1,440 still exceeds total variable cost 900, so the firm keeps producing in the short run. (Marking: profit 2, comparison 1, conclusion 1)

Section D: Market Structure and Monopoly Pricing (16 marks)

Data 4: a monopolist faces demand P = 120 – 2Q with marginal revenue MR = 120 – 4Q and constant marginal cost 20.

#	Question	Answer and marking notes
13	(a) Find the profit-maximising quantity and price.	Answer: set MR = MC, 120 – 4Q = 20, so Q = 25; P = 120 – 2 x 25 = 70. (Marking: equation 2, quantity 1, price 1)
14	(b) Find total revenue, total cost and profit at that output.	Answer: revenue = 70 x 25 = 1,750; total cost = 20 x 25 = 500; profit = 1,250. (Marking: revenue 2, cost 1, profit 1)
15	(c) If the market becomes perfectly competitive with price equal to marginal cost, find the quantity and compare it with the monopoly output.	Answer: 120 – 2Q = 20 gives Q = 50; that is 25 more than the monopoly output, so the monopolist supplies only half of the competitive quantity. (Marking: equation 2, quantity 1, comparison 1)
16	(d) Find the consumer surplus under monopoly pricing.	Answer: P = 120 when Q is zero; consumer surplus = (120 – 70) x 25 / 2 = 625. (Marking: intercept 1, formula 2, answer 1)

Section E: National Income and Price Level (18 marks)

Data 5: an economy has C = 200 + 0.8Yd, I = 300, G = 400 and a lump-sum tax T = 100, with Yd = Y – T and no external trade.

#	Question	Answer and marking notes
17	(a) Find the equilibrium national income and the multiplier.	Answer: Y = 200 + 0.8(Y – 100) + 300 + 400 = 820 + 0.8Y; 0.2Y = 820, so Y = 4,100; multiplier = 1 / (1 – 0.8) = 5. (Marking: substitution 2, income 2, multiplier 1)
18	(b) If government spending rises by 100, find the new equilibrium national income.	Answer: income rises by 5 x 100 = 500; new equilibrium = 4,100 + 500 = 4,600. (Marking: multiplier 2, rise 1, new level 2)
19	(c) Nominal GDP is 5,740 and real GDP is 4,100. Find the GDP deflator.	Answer: deflator = 5,740 / 4,100 x 100 = 140. (Marking: formula 2, value 2)
20	(d) The consumer price index rises from 105 to 110. Find the inflation rate to two decimal places.	Answer: inflation = (110 – 105) / 105 x 100 = 4.76 per cent. (Marking: formula 2, value 2)

Section F: Money, Banking and Trade (16 marks)

Data 6: a banking system holds deposits of 5,000,000 and cash reserves of 1,200,000 with a required reserve ratio of 20 per cent. The exchange rate moves from 7.8 to 7.5 Hong Kong dollars per US dollar.

#	Question	Answer and marking notes
21	(a) Find the required reserves and the excess reserves.	Answer: required reserves = 5,000,000 x 20 per cent = 1,000,000; excess reserves = 1,200,000 – 1,000,000 = 200,000. (Marking: required 2, excess 2)
22	(b) Find the simple deposit multiplier and the maximum new deposits the system can create.	Answer: multiplier = 1 / 0.2 = 5; maximum new deposits = 200,000 x 5 = 1,000,000. (Marking: multiplier 2, new deposits 2)
23	(c) An imported good costs 100 US dollars. Find its Hong Kong dollar price at both rates and the difference.	Answer: 780 at 7.8 and 750 at 7.5; the difference is 780 – 750 = 30, so the good is cheaper by 30. (Marking: each price 1, difference 2)
24	(d) An exporter receives 100 US dollars. Find the fall in Hong Kong dollar income in amount and in percentage.	Answer: income falls from 780 to 750, a fall of 30; the percentage fall is 30 / 780 = 3.85 per cent. (Marking: amount 2, percentage 2)

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