HKCEE ECONOMICS | 2 Demand supply and price elasticity | P.

1. 1990/I/4b
Suppose there is a fall in local people’s desire for consumptions and unsold stocks are pilling up in the
garment industry. Illustrate this situation with the aid of a diagram. (6 marks)

2. 1990/I/5c
The government has announced a $127 billion project for building a new airport at Chek Lap Kok and
improving the harbour facilities.
(i) An economist argues that the cost of this project to society is higher than $127 billion. Give TWO
reasons to support his argument. (4 marks)
(ii) Explain the effects on
(I) the demand for
(II) the supply of
residential flats in and around Kowloon City after the removal of the airport to the new site. (6 marks)

3. 1991/I/1b
In the fiscal year 90/91, the government greatly increased the tax on gasoline. With the aid of separate
demand and supply diagrams, explain the effect on the equilibrium price and quantity of
(i) Gasoline (6 marks)
(ii) New cars (7 marks)

4. 1991/I/2b
Suppose in Hong Kong the public medical service is perfectly inelastic in supply.
At present the public medical fee is set below the equilibrium level. Suppose the government raises the fee
to the equilibrium level. With the aid of diagram, explain what would happen to the following:
(i) the quantity of the public medical services demanded by the patients
(ii) the total revenue from the provision of the public medical service (8 marks)

5. 1991/I/4c
Many construction companies in Hong Kong say that they are facing the problem of ‘labour shortage’.
(i) What is meant by ‘shortage’ in economies? Illustrate with a diagram. (5 marks)
(ii) Suppose the wage rate of construction workers remains unchanged. With the aid of separate
diagrams, explain how
(I) a recession (5 marks)
(II) the importation of construction workers (5 marks)
would lessen the ‘labour shortage’ problem of the construction companies.

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6. 1992/I/1d
In Hong Kong, the number of urban taxi licenses issued by the government is fixed.
(i) Draw a supply curve to illustrate this situation. (2 marks)
(ii) Suppose the government decides to issue more urban taxi licenses. With the aid of diagram of a
supply and demand diagram, explain
(I) how the market price of an urban taxi license will be affected, and
(II) why the total value of all urban taxi licenses in Hong Kong might increase. (10 marks)

7. 1992/I/2b
Suppose US imposes an import tax on Hong Kong-made garments. With separate diagrams, explain the
effects on the equilibrium price and quantity of
(i) Hong Kong-made garments in the US market, and (5 marks)
(ii) US-made garments in the US market. (5 marks)

8. 1992/I/4d
Owing to the construction of the new airport, more companies have decided to redevelop their factories in
Tsuen Wan into hotels and shopping centres.
(i) Explain the effect on BOTH the demand for and supply of hotels and shopping centres in Tsuen Wan
in the coming few years. (6 marks)
(ii) With the aid of a supply and demand diagram, explain why the prices of the properties in (d)(i)
might still increase. (6 marks)

9. 1993/I/1a
‘Yummy Yummy’ is a fast food shop. In a promotion campaign, the shop reduced its selling price of a
hamburger from $4.2 to $3.5. Later it was learnt that the total expenditure of customers on hamburgers
increased despite the price cut. With the aid of diagram, explain this phenomenon in terms of the price
elasticity of demand. (7 marks)

10. 1993/I/3c
During the rush hours, the number of passengers is greater than the maximum capacity of the MTR service.
After a peak congestion fare (繁忙時間附加費) was added to the normal fare, there was less overcrowding
of passengers during those hours. Explain this situation with the aid of a diagram. (8 marks)

11. 1993/I/4bii
Suppose a large number of Japanese TV sets are smuggled from Hong Kong to China and sold for HK$40
million. With the aid of a diagram, explain how the equilibrium price of the TV sets in China will be
affected. (4 marks)

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12. 1994/I/9b
Owing to a huge trade deficit with Japan, some Americans suggest imposing high tariffs on cars imported
from Japan. How would these tariffs affect
(i) the equilibrium price and quantity of newly-imported Japanese cars on the U.S. market? Explain
with the aid of a diagram. (5 marks)
(ii) the equilibrium wage rate and employment of the U.S. car manufacturing workers? Explain with the
aid of a diagram. (6 marks)

13. 1994/I/11b
Suppose a typhoon destroys a large quantity of vegetables of Country A. However, the total revenue from
the sale of vegetables increases. With the aid of diagram, explain this phenomenon in terms of the price
elasticity of demand. (7 marks)

14. 1995/I/3
(a) State the law of demand. (2 marks)
(b) Point out the difference between ’quantity demanded’ and ‘quantity brought’ (2 marks)

15. 1995/I/9a
The Would Cup of 1994 was held in the USA. People from all over the would went to the US to watch the
matches.
The Final Match was held in Los Angeles. The rental accommodation (出租住宿單位) in the city was fixed
in supply. Due to the high demand, many disappointed football fans could not rent an accommodation unit
because the rental price was not high enough.
(i) Draw a well-labeled supply-demand diagram to show the above situation. (2 marks)
(ii) If the rental price had been raised to a level where the demand had met the fixed supply, how would
the rental income of the accommodation owners be different from that in (a)(i)? Explain with the aid
of a diagram. (5 marks)

16. 1995/I/11a
After the completion of a new highway, the traveling time between Tin Shui Wai and Central will be much
shorted. In addition, more land in Tin Shui Wai will be provided for building private housing.
Mr. Ip thinks that the prices of private housing in Tin Shui Wai will increase due to the combined effects of
the above government policies. With the aid of a supply-demand diagram, explain the circumstance under
which Mr. Ip would be right. (7 marks)

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17. 1996/I/11a
Newspapers in Hong Kong entered into a price war at the end of 1995.
The following is a conversation between two managers of a newspaper.
General manager: ‘A price-cut will reduce our newspaper’s total sales revenue.’
Sales manager: ‘Even if we do not cut our price, the total sales revenue will still decrease when others cut
theirs.’
Explain the argument behind EACH of the above statements with the aid of a separate diagram. (11 marks)

18. 1996/I/12a
The manufacturing workers in Hong Kong are facing the problem of a rising unemployment rate.
Assume that manufacturing workers are not willing to accept lower wage rates. With the aid of diagrams,
explain how EACH of the following would lead to unemployment in the manufacturing sector.
(i) declining secondary production because of a structural change in the economy (5 marks)
(ii) importation of manufacturing workers (5 marks)

19. 1997/I/9b
Suppose the government builds a railway in northwest New Territories.
With the aid of a diagram, explain the effect of this new railway on the total revenue of mini-buses operating
on the same route. (6 marks)

20. 1997/I/11c
Suppose there is a drastic increase in sewage charges which affects the total revenue of local restaurants.
With the aid of a diagram, explain the condition under which the total revenue would decrease. (8 marks)

21. 1998/I/9c
Mr. Wong employs some imported workers in the restaurant.
(i) With the aid of a diagram, explain the effect of importation of workers on the equilibrium wage rate
of restaurant workers in Hong Kong. (4 marks)
(ii) Use the same diagram to illustrate the effect of importation of workers on the employment level of
local restaurant workers. (3 marks)

22. 1998/I/10b
Suppose the government punishes both the sellers and buyers of illegal computer software. With the aid of
separate diagrams, explain how this would affect the market price of
(i) illegal computer software. (6 marks)
(ii) legal computer software. (4 marks)

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23. 1998/I/11b
Suppose Japanese Yen depreciates against the Hong Kong dollar, and that Hong Kong people’s demand for
Japanese cars is elastic.
With the aid of a diagram, explain how these factors would affect the sales revenue (in HK$) of Japanese
cars in Hong Kong. (8 marks)

24. 1999/I/2
Study the following news report :
Last year people was afraid of eating poisonous seafood. Though the import volume of seafood
decreased, its selling price remained the same.
Explain the phenomenon mentioned in the news report with the aid of a supply-demand diagram. (6 marks)

25. 1999/I/9b
The Japanese Yen depreciated sharply against the Hong Kong dollar. Other things being equal, what would
be the effect on the sales revenue of French cars in Hong Kong? Explain your answer with the aid of a
supply-demand diagram. (9 marks)

26. 1999/I/11a
Some people believe that the number of taxis on roads can never satisfy the demand and that a rise in taxi
fares would increase the sales revenue of the taxi service.
Explain this viewpoint with the aid of a supply-demand diagram. (8 marks)

27. 2000/I/2
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)

28. 2000/I/9bi
Some petroleum companies complained that their business was affected because some drivers bought
gasoline from smugglers who evaded import duties.
With the aid of a diagram, explain how the smuggling of gasoline would affect the sales revenue of
petroleum companies. (7 marks)

29. 2000/I/11b
With the aid of a diagram, explain the condition under which a large emigration of Country A’s workers to
Country B would lead to a decrease in the total income of all workers (including those immigrants) in
Country B. (8 marks)

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30. 2001/I/2
Suppose the postage charge of a country is fixed. When e-commerce and e-mail becomes popular, the
revenue of the country’s Post Office from the postage charge falls sharply.
(a) Indicate in a diagram the decrease in the postage charge revenue of the Post Office.
(b) In order to compensate for the decrease in revenue, the Post Office increases its postage charge.
Indicate in the diagram in (a) the change in revenue of the Post Office due to the increase in postage
charge. (5 marks)

31. 2001/I/10ci
Bank A raises capital by issuing shares to the public. The quantity and subscription price (認購價) of these
shares are fixed and not all people who apply for these shares are successful in their application.
Explain the economic phenomenon described above with the aid of a diagram. Also indicate in the diagram
the amount of capital raised. (7 marks)

32. 2001/I/11d
There is an excess supply of private housing at the price set by private housing developers. The government
declares that the supply of housing under the Home Ownership Scheme will be reduced.
Suppose the price of private housing remains unchanged. With the aid of a diagram, explain how this new
government housing policy would affect the sales revenue of private housing developers. (7 marks)

33. 2002/I/2
Suppose the Organization of Petroleum Exporting Countries cuts its oil production. At the same time, the
demand for automobiles decreases.
With the aid of a diagram, explain under what condition the price of gasoline would increase. (7 marks)

34. 2002/I/10b
Suppose the banks decrease their interest rates on home mortgage loans. With the aid of a diagram, explain
how this would affect the total expenditure on the purchase of private housing. (6 marks)

35. 2002/I/11b
There are student places not yet filled in Miss Wong’s tutorial school. The school decides to launch an
advertising campaign to recruit more students and to keep the tuition fee unchanged.
With the aid of a diagram, explain how a successful advertising campaign would fill all the places and
increase the total revenue of the school. (7 marks)

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36. 2003/I/1
A reporter wrote : ‘… The government has not allowed families with an income of more than $21 000 a
month to buy a living unit under the Home Ownership Scheme (HOS). Nevertheless, there are not enough
living units under this scheme available for applicants.’
(a) Use your knowledge of demand and supply to describe the HOS living units market. Illustrate your
answer with the aid of a diagram.
(b) If the income restriction on the applicants is lowered to $18 000, explain the effect on the HOS living
units market by using the diagram in (a). (7 marks)

37. 2003/I/9a
Deflation has occurred in Hong Kong since 1998.
A government official has said, ‘Deflation in Hong Kong would stimulate its exports.’
With the aid of a diagram, explain under what condition would deflation increase Hong Kong’s total export
value (in terms of the Hong Kong dollar). (7 marks)

38. 2003/I/10b
Suppose the price of paper falls drastically and the number of school children increases.
(i) Explain why the supply of and the demand for textbooks would be affected by these changes.
(ii) With the aid of a diagram, explain under what condition the price of textbooks would decrease.
(8 marks)
39. 2003/I/11d
With the aid of a diagram, explain how the closing down of IT companies would affect the wage rate and
employment level of the professionals in the IT industry. (6 marks)

40. 2004/I/3
Recently, digital cameras have become popular for taking photographs. With the aid of a diagram, explain
how this would affect consumers’ total expenditure on rolls of film. (6 marks)

41. 2004/I/10a
At the outbreak of SARS, airlines did not reduce air fares or the number of flight. As a result, there were a
lot of empty seats on planes flying to Hong Kong. With the aid of a diagram, explain the above economic
phenomenon, and explain how the total revenue of these airlines was affected. (8 marks)

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42. 2004/I/11b
In Hong Kong, many fashion items are imported from Europe. Suppose the US dollar depreciates against
the Euro.
(i) Explain how the import price (in terms of HK$) of European fashion items would change under the
linked exchange rate system. (2 marks)
(ii) With the aid of a diagram, explain under what condition the total import value (in terms of HK$) of
European fashion items would decrease. (6 marks)

43. 2005/I/1
During the period of the 2004 Olympic Games, the tourism business of the host city
Athens was not as good as expected. The causes were generally believed to be an
appreciation of the euro and also that tourist were afraid of a terrorist attack.

One of the above two causes would lead to a change in demand for, while the other would lead to a change
in the quantity demanded of, the tourism service of Athens.
With the aid of the following two diagrams, explain separately the effect of each of the above two causes.
(5 marks)
(i) The effect of an appreciation of the euro :
Unit Price
(in terms of US dollars)

Quantity of tourism
0 service of Athens

(ii) The effect of a fear of a terrorist attack :

Quantity of tourism
0 service of Athens

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44. 2005/I/9a,bi
The Western Harbour Crossing (俗稱西隧) has no traffic congestion problem. In July 2004, its tolls
increased (except for taxis).
(a) With the aid of a diagram, explain under what condition an increase in the tolls would increase the
sales revenue of the tunnel company. (6 marks)
(b)(i) The traffic using the Cross Harbour Tunnel (俗稱紅隧) is congested during the rush hours.
While the tolls of the Western Harbour Crossing increased, the tolls of the Cross Harbour Tunnel
remained unchanged. With the aid of a diagram, explain why in this situation, the traffic using the
Cross Harbour Tunnel during the rush hours would become more congested. (6 marks)

45. 2006/I/9a
Each year, during the tourism peak season of the National Day golden week in October, a large number of
tourists from Mainland China visit Hong Kong.
(i) Every September these hotels have vacant rooms. Draw a supply-demand diagram in Figure 2 for
this situation. Explain your answer. (3 marks)
(ii) As compared to September, these hotels have fewer vacant rooms during the National Day golden
week in October even though they raise their room charges during this week.
Indicate the above changes in the supply-demand situation of these hotel rooms in Figure 2. Explain
your answer. (6 marks)

Figure 2

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46. 2007/I/8a
The universities in Hong Kong do not only admit local students. Since last year, these universities have
begun to admit a large number of top-quality Mainland students. Suppose all students pay the same tuition
fees.
Because of competition from these Mainland students, the problem of shortage of university places in Hong
Kong has worsened.
Draw a supply-demand diagram in Figure 1 to illustrate the above change in the shortage. Explain your
answer. (6 marks)
Tuition fee
Figure 1

Quantity of
university places in
0 HK for local and
Mainland students

47. 2008/I/1
Rice is a staple food in Hong Kong. Refer to the following table.
Year Total consumption of rice (ton) in Hong Kong
1980 355 310
1990 351 182
2000 322 223

During this period of time, the size of the population of Hong Kong has increased. Explain TWO
demand-side factors that would lead to the above change in rice consumption. (4 marks)

48. 2008/I/9bii
The stock market of an economy is overheated. Many people withdraw money from their bank deposits to
buy shares.
Two measures are suggested to cool down the overheated stock market.
With the aid of a diagram, explain the effect of the imposition of the capital gains tax on the total market
value of shares in the economy. (7 marks)

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49. 2008/I/11a
The US government is trying to reduce the value of its imports from China. Two methods are suggested:
1. To press the Chinese government to revalue the Renminibi (RMB)
2. To impose a quota restriction on the imports from China
Explain under what condition the value of US imports (in terms of US$) from China will decrease due to a
revaluation of RMB. Illustrate your answer in Diagram 1 below. (7 marks)

Diagram 1
Unit price (US$)

Quantity of imports
0 from China

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