Hkcee Econ 2000 Paper 1

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2000-CE ECON


8.30 am – 10.00 am (1½ hours) This paper must be answered in English

1. 2.

This paper consists of two sections, A and B. Section A contains eight questions. Attempt ALL questions. The whole section carries 38 marks for content and 2 marks for effective communication. Section B contains three questions. Attempt any TWO questions. Each question carries 23 marks for content and 2 marks for effective communication.


Hong Kong Examinations Authority All Rights Reserved 2000

2000-CE-ECON 1–1

Section A

(40 marks)

Attempt ALL questions. 1. Statement 1 : Ice is a free good. Statement 2 : Ice is an economic good. Explain one situation in which statement 1 is correct and another situation in which statement 2 is correct. (4 marks)


David : When the price of chocolates increases, people will buy fewer chocolates. Amy : No, I don’t think so. The price of chocolates has increased, but the quantity of chocolates bought has also increased.

Explain, with the aid of separate diagrams, why both of them can be correct. (7 marks)


Explain why an incinerator

is a capital.

(2 marks)


The table below shows the production of a firm. Machinery (units) 10 10 10 10 10 Labour (units) 7 8 9 10 11 Average output of labour (units) 30 34 37 39 40

State the law of diminishing marginal returns and explain whether the above data illustrate the law. (6 marks)

2000-CE-ECON 1–2


All Rights Reserved 2000


I want to exchange some of my bananas for some of your vegetables.

But what I want now is some wood.

Barbarian A

Barbarian B

Define money and explain how money helps to solve the problem of exchange in this case. (4 marks)

2000-CE-ECON 1–3


All Rights Reserved 2000

Go on to the next page


Study the following data about Hong Kong. Year on year % change Unemployment Composite consumer in real gross domestic rate (%) price index product (GDP) - 5.1 - 6.8 - 5.7 - 3.4 4.4 5.0 5.7 6.2 119.2 118.6 116.1 115.6

Year 1998

Quarter 2nd 3rd 4th 1st


(a) Identify the phase of business cycle the economy was in during the above period of time. Give the THREE economic phenomena of this phase as indicated by the above data. (4 marks) (b) Some workers’ salaries were frozen during this period of time. Explain how their real income would change in this period. (3 marks)


A certain government announces that the unemployment rate has dropped but the number of unemployed has increased. Explain why the number of unemployed can increase despite a fall in the unemployment rate. (4 marks)


In 1999, the government refunded 10% of the salaries tax and profits tax to taxpayers. Explain how this would affect the wealth gap between the lowincome group and the high-income group. (4 marks)


2000-CE-ECON 1–4


All Rights Reserved 2000

Section B

(50 marks)

Attempt any TWO questions. 9. Study the following information.

Gasoline Bill Quantity sold : Price per liter : Government tax : Sales total : 50 L (liter) 3.780 $/L 6.060 $/L $ 189 $ 303 $ 492

(a) (i) Define regressive tax and explain whether the above gasoline tax is progressive, proportional or regressive. (5 marks) (ii) Give TWO economic reasons for the government to levy tax on gasoline. (4 marks) (b) Some petroleum companies complained that their business was affected because some drivers bought gasoline from smugglers who evaded import duties. (i) With the aid of a diagram, explain how the smuggling of gasoline would affect the sales revenue of petroleum companies. (7 marks) (ii) Explain how the smuggling of gasoline would affect the GDP of this economy. (4 marks) (c) What is the market structure of petroleum companies (e.g. Shell, Mobil) in Hong Kong ? Explain your answer. (3 marks)

2000-CE-ECON 1–5

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