Section A (40 marks, including 2 marks effective communication)
1. Study the following production schedule, there are only two factors: machines and labor.
Machines (units) | Labor (units) | Average cost of production ($) |
1 | 4 | 42 |
2 | 5 | 38 |
3 | 6 | 34 |
4 | 7 | 29 |
a. Is the production operating in long run or short run? Explain briefly. (2)
b. i. Why does the average cost of production keeps decreasing? (1)
ii. Give two examples that help reduce the average cost of production. (4)
2. The following table shows some information about labor in Firm A and B:
Firm A | Firm B | |
Number of workers employed | 150 | 100 |
Total output for the month | 12000 | 5400 |
Working hour per worker per day | 8 | 9 |
Working hour per worker per month | 160 | 162 |
a. Calculate the labor productivity of each firm per month. (2)
b. ‘Due to the company’s new policy, a worker specializes in a particular stage of producing a good or service.’ Suggest two ways that this new policy can increase the labor productivity of this company. (2)
c. Give two reasons to explain the difference in productivity of the two firms. Briefly explain your answer. (2, do not repeat your answer in 2b)
3. In November 2007, Alibaba issued new shares in Hong Kong, investors could buy shares through the stock market.
a. What kind of business ownership does Alibaba belong to? (1)
b. State ONE advantage and ONE disadvantage of the business ownership mentioned in question 3a over private limited company. (2)
c. The CEO (Chief Executive Officer) of Alibaba was appointed by board of directors. Explain whether the CEO is regarded as entrepreneur. (2)
4. The Government House is opened to the public every year. Free tickets will be distributed to the public, attracting hundreds of people to queue for long time in order to get the tickets.
a. Define opportunity cost. (2)
b. Explain whether the opportunity cost of every person who went to get the tickets is exactly the same. (3)
c. Explain whether the free tickets are free goods. (3)
5. New Lantau Bus Company (NLB) is a franchised bus company (專利巴士公司) which mainly provides franchised bus services in Lantau Island. Few years ago, NLB was taken over by Kwoon Chong Motors Company, which mainly provides non-franchised bus services in Hong Kong.
a. State what kind of integration it belongs to, and give two motives for this kind of integration. (1+2)
b. NLB provides bus services between Tung Chung and the Big Buddha. It is the only bus company providing this service.
i. What market structure does the bus services between Tung Chung and the Big Buddha belong to? Give one reason to explain. (2)
ii. The Ngong Ping 360 provides cable car services between Tung Chung and the Big Buddha. Explain whether this will affect the market structure of the bus service mentioned in 5b. (2)
6. Suppose a per-unit sales tax is imposed on Good X. With the aid of diagram, explain under what condition will producers’ burden be greater than that of consumers. (5)
Section B (40 marks, 2 marks effective communication on Questions 7 and 8 respectively)
7. During economic tsunami, different market intervention policies have been set up.
a. The US government has decreased the quota on imported garments from China. However, the total expenditure spent on these garments increased. Explain the phenomenon with the aid of diagram. (8)
b. Due to financial difficulties, some US car plants have to be closed. At the same time, the income of most people dropped significantly. Explain, with the aid of diagram, under what condition will the price of US private cars decreases. (8)
c. Some investors could not get back their investment in Lehman Bonds. As a result, some investors prefer to buy shares to bonds. Give ONE advantage of issuing shares over bonds from investors’ view and ONE from the company’s view respectively. (2)
8. Here are some information about the market of fastfood in Hong Kong:
Name | Market shares |
Café De Coral | 35% |
Fairwood | 30% |
Maxim | 30% |
a i. Base on the information above, explain what kind of market structure does fastfood shop services in Hong Kong belong to. (1)
ii. Suggest two reasons to explain why fastfood shop market in Hong Kong does not belong to perfect market competition. (4)
b. Attracting more customers, Fairwood decides to reduce the price of its meal by 5%. As a result, the number of meal sold increases from 1000 sets to 1200 sets.
i. Calculate the elasticity of demand of Fairwood fastfood. (1)
ii. Shortly afterwards, Café De Coral found that its total sales revenue decreases. Explain this phenomenon with the aid of diagram. (6)
c. Suppose there are only two production processes of a fastfood shop: cook food and sell food to customers. Explain what kind of production do a fastfood shop engaged in. (4)
d. Suggest one wage payment method which helps increase the productivity of the cook. Give ONE disadvantage of this method. (2)
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