1

Public Assessment

HKDSE Econ 2013 live paper Oct 2013

Live papers Paper 1: On compulsory part of the curriculum

Answer all questions 40 multiple choice questions* Account for 30% of the subject marks

(without SBA) 60 minutes *In 2014, total number of MCQ = 45

2

Live papers Paper 2 section A: On compulsory part of the curriculum Short questions All questions are compulsory 8 short questions 50 marks Account for 30% of the subject marks

(without SBA)

3

Live papers Paper 2 section B: On compulsory part of the curriculum Structured/essay-type questions All questions are compulsory 4 structured questions 54 marks Account for 31% of the subject marks

(without SBA)

4

Live papers Paper 2 section C: On elective part of the curriculum Structured/essay-type questions Attempt questions on ONE elective only 2 structured questions 16 marks each Account for 9% of the subject marks

(without SBA) In 2014 Exam: Total time is 2 hours 15 mins

5

Paper 1

Number of sat: 21334

Overall mean score: 25 out of 40 question = 62.5%

*compare to last year, the mean is dropped by less than one question.

6

Paper 1 Q12

A drop in the price for good X will lead to a drop in the price of good Y if

(1) good X and good Y are substitutes. (2) good X and good Y are complements. (3) good X and good Y are in competitive supply. (4) good X and good Y are in joint supply.

A. (1) and (3) only (24%) B. (1) and (4) only (15%) C. (2) and (3) only (10%) D. (2) and (4) only (51%)

7

Paper 1 Q17

The market structure of the electric power industry in Hong Kong is

A. an oligopoly because there are two dominating companies in the market. (37%)

B. an oligopoly because the pricing strategies of the companies are interdependent. (7%)

C. a monopoly because the companies can increase the price without losing customers. (16%)

*D. a monopoly because there is only one electric company providing electricity in any district. (40%)

8

Paper 1 Q21 Which of the following items is NOT included in the calculation of Hong Kong’s net factor income from abroad for the current year?

A. the income received by a Japanese teacher who worked in a language school in Hong Kong for one year (22%)

B. rental income earned from real estate holdings in Canada owned by a Hong Kong resident (13%)

C. salary received by an Indian consultant who worked for the Hong Kong Airport Authority for three months(28%)

D. dividends earned from shares in Hong Kong held by a US resident (37%)

9

Paper 1 Q25 Which of the following is included in the money supply M2?

(1) legal tender held by licensed banks (2) demand deposits with licensed banks (3) time deposits with restricted licence banks (4) negotiable certificates of deposit issued by licensed banks

held by the non-bank public

A. (2) and (3) only (10%) B. (2) and (4) only (41%) C. (1), (2) and (4) only (43%) D. (1), (3) and (4) only (6%)

10

Paper 1 Q28 An expansionary monetary policy is adopted in China when

(1) the Ministry of Finance (財政部) provides cash subsidies to agricultural workers. (2) the People’s Bank of China (中國人民銀行) reduces the required reserve ratio of all commercial banks. (3) the Bank of China lowers its lending rate to small and medium-sized enterprises.

A. (1) only (9%) B. (2) only (43%) C. (3) only (6%) D. (1), (2) and (3) (42%)

11

Paper 1 Comments Time: 40 MCQs in 60 mins Sufficient time Candidates are weaker in - Data interpretation - Application formula for calculation - Integration of topics - Marcoeconomics

12

13

Paper 2 Number of sat: 21309 Overall mean score in 2013: 50%

Paper 2 Marking Onscreen Marking System (OSM) Scanned images Markers mark in Assessment Centres: FH, SPK, LK, TW, TH, ST, SS, TKO Section A1, A2, B1, B2, C Each Marker marking 16-27 marks 800 to 1000 script Increase reliability

14

Paper 2

Welcome the Assistant Examiners to comment on the candidates performance by Section:

Section A1: (Q1, 3, 4, 6) Section A2: (Q2, 5, 7, 8) Section B1: (Q9-10) Section B2: (Q11-12) Section C: (Q13-14)

15

Paper 2 Section A1 (Q1, 3, 4, 6)

Q1: In Hong Kong, there are many travel agencies providing tour groups and booking services for air tickets. Give TWO reasons to explain why the market structure of travel agencies in Hong Kong is NOT perfect competition. (4 marks)

Q3: (a) What is the relationship between nominal interest rate and real interest rate? (2 marks) (b) “When there is actual deflation, the nominal interest rate will be lower than the real interest rate.” Do you agree? Explain. (3 marks)

16

Paper 2 Section A1 (Q1, 3, 4, 6) Q4: (a) Give ONE reason to explain why the aggregate demand curve is downward sloping. (3 marks)

(b) Suppose there is an increase in the price of raw materials. With reference to the market adjustment mechanism from the short run equilibrium to the long run equilibrium, explain the long run effect of the above change on the price level with the aid of Figure 1.

(9 marks)

17

18

Paper 2 Section A1 (Q1, 3, 4, 6)

19

Paper 2 Section A1 (Q1, 3, 4, 6) Q6: The table below shows the items of the balance of payments of Country A in a certain year:

Debit ($ million) Credit ($ million) Export of goods 35 Import of goods 50

Export of services 47 Import of services 27

Capital inflow 70 Capital outflow 85

Foreign exchange and reserves assets 10

Total 162 162

Paper 2 Section A1 (Q1, 3, 4, 6)

Q6: (a) Calculate the current account balance of Country A. (1 mark)

(b)“Country A has a balance of payments surplus because there is an increase in foreign exchange reserves in that year.” Explain whether you agree with this statement. (3 marks)

20

Paper 2 Section A2 (Q2, 5, 7, 8) Q2: The Hong Kong government plans to introduce the “Hong Kong Property for Hong Kong Residents” policy. The flats built under the policy can only be sold to Hong Kong permanent residents within 30 years.

(a) What are private property rights? Explain why the private property rights over the flats may be weakened under this policy. (4 marks)

(b) Compared with similar flats in the same district without the reselling restriction, would the price of the flats under this policy be higher or lower? Explain. (3 marks)

21

22

Paper 2 Section A2 (Q2, 5, 7, 8) Q5: Each unit of resources can be used to produce the following amount of goods in Country A and Country B:

Food (units) Smartphones (units) Country

A 30 OR 40

Country B 40 OR 80

(a) Explain which country has a comparative advantage in the production of smartphones. (3 marks)

(b) Suppose the transportation cost per unit of smartphones traded is 0.2 units of food. Is it possible to have mutually beneficial trade between these two countries? Explain. (3 marks)

23

Paper 2 Section A2 (Q2, 5, 7, 8) Q7: Table 1 shows the Gini coefficients by occupation of Hong Kong in the years 2006 and 2011.

Table 1 Gini Coefficient 2006 2011

Construction 0.362 0.385 Financing, insurance, real estate and business services

0.544 0.548

(a) According to Table 1, which occupation has a smaller income inequality among its workers? Give TWO possible reasons that account for such a difference in income inequality. (4 marks)

24

Paper 2 Section A2 (Q2, 5, 7, 8) Table 2 shows the employment distribution by industry section of Hong Kong in the years 2006 and 2011.

Table 2 Employment Distribution by Industry Section

2006 2011 Construction 8.0% 7.7% Financing, insurance, real estate and business services

17.0% 19.2%

Table 3 shows the Gini coefficients of Hong Kong in the years 2006 and 2011.

Table 3 2006 2011 Gini Coefficient 0.533 0.537

(b) How may the data given in Tables 1 and 2 help explain the change in the income inequality of Hong Kong as reflected in Table 3? (4 marks)

Paper 2 Section A2 (Q2, 5, 7, 8) Q8: Suppose a government is facing a budget deficit. Some politicians have proposed that the government should raise the income tax rate to reduce the budget deficit. Evaluate their proposal. (4 marks)

25

Paper 2 Section B1 (Q9-10) Q9: The following is an extract from a local newspaper article.

The MTR Corporation raised the railway fares by 5.4% in 2012. This increase was based on the Fare Adjustment Mechanism set by the government. To respond to the discontent of the public over the fare increase, the Corporation introduced a concessionary measure “Ride 10 Get 1 Free”.

(a) With the aid of a diagram, explain under what condition the total expenditure of passengers on the MTR will increase because of the rise in fare. (5 marks)

26

Paper 2 Section B1 (Q9-10) Q9: (b) Under the “Ride 10 Get 1 Free” scheme, with 10 fare-paying journeys on the MTR from Monday to Friday in the same week, passengers could get a single journey ticket for free. Is the free journey a free good? Explain. (2 marks)

(c) It was observed that there were queues of passengers redeeming the free tickets at customer service counters in MTR stations. Suppose the waiting time is the same for these passengers, is the cost of redeeming the free tickets necessarily the same to these passengers? Explain.

(3 marks)

27

28

Paper 2 Section B1 (Q9-10) Q10: There are cooks, waiters, managers and receptionists working in restaurants. (a) What economic principle is illustrated by the above phenomenon? List THREE reasons why the principle can increase labour productivity.(4 marks)

The following is a job advertisement for a manager in a restaurant. Manager

Working hours: 12:00 noon – 10:00 p.m. 6 days a week

Salary: $15 000 per month + performance-related bonus

(i) From the viewpoint of the restaurant owner, explain ONE advantage of the above payment method over time rate.(2 marks)

(ii) From the viewpoint of the manager, explain ONE advantage of the above payment method over a profit-sharing scheme. (2 marks)

Paper 2 Section B1 (Q9-10) Q10(c) The Hong Kong government has introduced an effective minimum wage. Subsequently, many restaurant owners claim that they are unable to employ enough workers for their restaurants at the minimum wage rate. With the aid of a demand-supply diagram, explain why the above phenomenon may arise. (9 marks)

29

Paper 2 Section B2 (Q11-12) Q11: The government has launched the “Work Incentive Transport Subsidy Scheme”, with the following objectives:

(1) To relieve the burden of travelling expenses commuting to and from work on the part of low-income households with employed members (2) To promote sustained employment

Applicants must meet the monthly income and asset limits of the household (e.g. for a single person, the monthly income cannot exceed $7 300 and the assets cannot exceed $72 000) and work no less than 72 hours per month in order to apply for a subsidy of $600 per month.

(a) Do you think that the scheme can achieve the above two objectives? Explain. (4 marks)

(b) Discuss the effects of the scheme on (i)labour mobility, (ii) income inequality, and (iii)the unemployment rate. (9 marks)

30

31

Paper 2 Section B2 (Q11-12) Q12: The following table shows the balance sheet of the banking system of an economy.

The public holds $1 000 million cash and all banks are fully loaned up.

(a) Calculate the monetary base and the money supply in the economy. Show your workings. (4 marks)

(b) If the required reserve ratio is adjusted to 25%, calculate the new money supply in the economy. Show your workings. (2 marks)

(c) With the aid of an aggregate-demand-aggregate-supply diagram, explain the short run effects of an upward adjustment of the required reserve ratio on output and the price level of the economy. (8 marks)

Assets ($million) Liabilities ($million) Reserves 400 Deposits 2 000 Loans 1 600

Paper 2 Section C (Q13-14) Q13: (a) Figure 2 shows the demand curve faced by a monopolist. The monopolist has a constant average cost of production. With the aid of Figure 2, explain why simple monopoly pricing may lead to economic inefficiency. (7 marks)

32

Paper 2 Section C (Q13-14) Q13: (b) A retailer offers discounts to tourists who are able to present their travel documents at the cashier. Does this practice constitute price discrimination? Explain. (3 marks)

(c) Name the anti-competitive behaviour that each of the following cases may constitute and explain how such behaviour restrains competition.

(4 marks)

(i) An instant noodle supplier does not supply its product to a local retailer because the retailer refuses to comply with the recommended price set by the supplier. (ii) One of the major bus companies reduces its fares to a level below its cost of production.

(d) Explain ONE concern when introducing a competition policy.(2 marks)

33

Paper 2 Section C (Q13-14) Q14: (a) Country A requires 1 unit of labour to produce a unit of Good X and 2.5 units of labour to produce a unit of Good Y. Suppose labour is the only resource required for production. Country A is endowed with 10 units of labour and the terms of trade is 1X = 1Y.

(i) Explain which good Country A will import. (ii) Construct the production possibilities frontier and consumption possibilities frontier of Country A in Figure 3. (4 marks)

Suppose the labour force of Country A increases by 10 units.

(iii) Will the direction of trade be affected? Will Country A be better off as a result? Explain your answers with the aid of Figure 3. (6 marks)

34

35

Paper 2 Section C (Q13-14)

36

Paper 2 Section C (Q13-14) Q14: (b) Refer to the following information about Hong Kong and Japan in 2011 and answer the following questions.

Human Development Index (HDI) rank

Gross National Income per capita rank MINUS HDI rank

Japan 12 11 Hong Kong 13 -4

(i) Which place had a higher Gross National Income per capita in 2011? Show your workings. (ii) State TWO possible reasons why Japan had a higher HDI rank than Hong Kong in 2011. (iii) Suggest ONE government policy that could raise Hong Kong’s HDI rank. (6 marks)

Paper 2

General reminder: Please don’t use colour to indicate the

areas in the diagram Don’t successively use symbols in the

answer. Express the answer in a

comprehensible way: rough work write not in the designated spaces will NOT be marked.

37

Paper 2 Overall comments

Time allocation Simply regurgitating concepts and

theories (but not precise enough) Read questions carelessly Poor presentation Graphs and handwriting Lack awareness of current economic

issues

38

Grading - paper marks and subject marks Raw mark of Paper 1 (max mark): 40 Raw mark of Paper 2 (max mark): 124 Adjusted mark: Marks awarded by markers

are adjusted, if necessary, to rectify lenient, strict or erratic marking.

Weighted paper mark: Marks of different papers are converted to the samecomparable scale, taking into account thespread of marks in different papers and the published paper weightings, before they arecombined to form the subject mark.

39

Grading - Grading procedures http://www.hkeaa.edu.hk/tc/hkdse/The_Report

ing_System/ 1. Sample scripts selection 2. Standardisation 3. Post-marking exercise:

The grading panel will discuss and suggest a provisional grading recommendation (including prepliminary cut score range) on each paper through expert judgment base on:

40

Grading – Post-marking exercise

The level descriptors The standards of 2012 DSE (library scripts) Marked-live scripts, selected according to the total

marks Feedback from markers on the level of difficulty of

papers Inter-paper correlations, the mean and standard

deviation of the current year’s papers Paper mark cumulative distributions Performance samples from the HKDSE SRR

information Packages

41

Grading – Panel of judges grading meeting • prepliminary cut score range • Samples scripts around the cut score range • Group ability index:

- constructed per level - An index for each level based on the

number of candidates in this group (this subject) achieving that particular level in the four core subjects

- depends on the correlation of the subject and EACH of the 4 core subjects

42

Grading – Panel of judges grading meeting Panel of judges considers: • preliminary cut score range • Samples scripts around the cut score range • Group ability index (GAI) as reference

Recommendation for the cut score for the subject

• The panel of judges plays a very important and independent role in setting a cut score for each level based on the actual performance of candidates

43

Grading – Internal meeting and Public Examinations Board meeting

• Internal meeting: A senior management team led by Secretary General of the Authority will meet to review the recommendations of individual subject panels.

• PEB meeting: The recommendations of the internal meeting will be reviewed at the PEB meeting and the final cut scores of all HKDSE subjects must be endorsed at this meeting.

44

Grading – Determination of level 5** and 5* • Statistically determined • The highest 10% (approximately) of level 5

candidates will be awarded 5** • The next highest-achieving 30%

(approximately) of level 5 candidates will be awarded 5*

45

Grading: Standard Maintenance • Standard of the level 1,2,3,4,5 should be

maintained across years • the cutting scores NOT constant:

the cutting scores depends on level of difficulty of the papers and the actual performance of the candidates

• It is possible that a level 2 candidate perform better in one particular question than a level 5 candidate: the level represents the overall performance

46

Acknowledgment Mr. Chan Mau Tak Mr. William Au Mr. Ng Man Ho Ms. Amy Chan Mr. Chan Chi Yuen

Po Chiu Catholic Secondary School

47

Acknowledgment Ms. Man Kam Fun Ms. Lau Yin Ling Mr. Chan Wai Kit Ms. Wong Chor Yu Ms. Tseng Lai On Ms. Piano Lo Mr. Wong Wing Chung Mr. Pang Ying Yeung Ms. Joanna Pun Heung To Middle School

48