HKDSE Economics Notes SAMPLE
HKDSE Economics Notes SAMPLE
HKDSE Economics Notes SAMPLE
CONTENT
2019 3 –
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CONTENT.................................................................................. 1
Ch.1 Basic Economic Concepts.................................................. 3
Ch. 2 Basic economic problems ............................................... 10
Ch. 3 Ownership of Firms ........................................................ 12
Ch. 4 Production & Division of Labour ................................... 18
Ch. 5 Factors of Production ...................................................... 22
Ch. 6 Production & costs in the Short Run and Long Run ....... 30
Ch. 7 Objectives and expansion of firms .................................. 39
Ch. 8 Determination of Market Price ....................................... 43
Ch. 9 Change in Market Price................................................... 46
Ch. 10 Price Elasticity .............................................................. 49
Ch. 11 Market intervention ....................................................... 53
Ch.12 Market Structure ............................................................ 69
Ch.13 Efficiency, equity and role of government..................... 73
Ch.13 Efficiency, Equity & Role of Government (I) –
Government intervention .......................................................... 75
Ch.13 Efficiency, Equity & Role of Government (I) –
Externalities .............................................................................. 78
Ch. 14 Efficiency, Equity & Role of Government (II) ............. 88
Ch. 15 - 16 National Income accounting ................................ 101
Ch.17 Aggregate Demand & aggregate supply ...................... 124
☆Overview
Limited resources Limited resources
scarcity
choice
discrimination
☆Scarcity
= resources available are not enough to satisfy all people’s
wants
☆Opportunity cost
= Highest valued option forgone
= Money cost + non-money cost (e.g. time cost)
☆Sunk cost
= Cost which has been incurred, cannot be recovered
☆Interest
- To borrowers: Cost of earlier availability of resources
(positive time preference)
☆Free/Economic goods
Free goods Economic goods
Sufficient to satisfy all human not enough to satisfy all human
wants wants
People do not prefer more of it People prefer more of it
No cost involved in production Cost involved in production.
*Exchange
= Necessary condition for specialization
⸪ Without possibility to exchange, you have to produce
everything by yourself.
real flow
money flow
Soln: Only (1) and (2) are correct. Scarcity can still exist when
wants are limited, as long as resources available cannot
satisfy all human wants.
☆Limited Company
① Legal entity:
- Can sue / can be sued
- Can buy properties / sign contracts
- Owner does not have to bear legal responsibilities
② Limited liability: Liability of shareholders is limited to the
amount of investment in the company
③ Lasting continuity
④ Higher Profits tax rate
⑤ Wider source of capital: issuing shares / bonds
⑥ More complicated Set-up procedures
⑦ Separation of ownership / management
Private Public
-owners < 50 -owners: unlimited
-cannot issue shares and bonds -can issue shares and bonds to
to public public
-shares have to be transferred -shares can be transferred freely
under consent of all
shareholders
-need not disclose financial info -need to disclose financial into
regularly
☆Public Enterprise
*Govt. Departments / public corporations
☆Public Enterprise
*Govt. Departments / public Advantages of public enterprise
(H-E-A-R) over govt. department:
① Adequate & Stable capital - better control of employees
② Easy access to info data - higher incentive to lower
→better business decisions product cost
③ Reliable supply of goods - more responsive to demand
④ Higher average product - profit - motive
→not profit maximizing. - more flexible operation
- more innovative
☆Bonds vs Shares
Firm’s Perspective:
Bonds Shares
Pros ① Not diluting existing ① No obligation to pay
shareholder’s power of dividend
Control ② No fixed redemption
② No risk of being taken date (no need to buy back
over shares)
Cons ① Obligated to pay fixed ① Dilute existing
Investors’ Perspective:
Bonds Shares
Pros ① Lower risk: higher ① Higher potential return
priority in claiming ② Has voting rights (affect
repayment when the firm management of firm)
liquidates
② More stable return
(interest rate is fixed
regardless of loss)
Cons ① No voting rights ① Higher risk: last in
② Fixed rate of return claiming repayment when
(regardless of profit) the firm liquidates
② Less stable return
☆Productions vs Consumption
Production = turning inputs into outputs
Consumption = using goods and services to directly satisfy
human wants
☆Types of production
Type Definition Examples
①Primary extracting raw mining, fishery, farming
materials from nature
②Secondary turning raw construction, garment,
materials, in semi - manufacturing
finished / finished
products
③Tertiary providing service transportation, banking,
education
② Size of market
→small amount of output
→small no. of workers
☆Summary
Factor Definition Return
Capital Man-made resources in production Interest
Land Natural resources in production Rent
Labour Human effort used in production Wage
Entrepreneurship Human effort provided by owner Profits
of the firm, including risk bearing
+ decision-making
☆Capital
* Man-made resources in production
* Return = interest
☆Land
* Natural resources in production
* Return = rent
- Emergence of land: no choice à No opportunity cost
(BUT use of land might have opportunity cost!)
Capital Land
man-made resource natural resources
human effort applied no human effort applied
can be artificially increase can increase but cannot be
artificially increased
can be relocated by human cannot be relocated by human
effort effort
production involves cost emergence involves no cost
☆Labour
* Labour supply
- (number of worker) × average working hours) × [man-hour]
(unit!!!)
*Labour Productivity
= (output) ÷ (man-hour) [output per man-hour]
①Education and training
②Working conditions
③Incentive to work
(e g. bonuses, job prospect)
profit- ↑ ↓ ↑ ↓ ↑
sharing
(employ
er shares
risk with
employe
e.)
tips ↑ ↓ ↑ ↓ ↓
*Factor mobility
①Occupational mobility (The ease with which a factor moves
from one occupation to another.)
-monetary / non-monetary rewards
-skill and education requirements
(requirement↑= harder to enter industry)
-trade union restriction
-availability of retraining programmes
-market information
②Geographical mobility
-transportation network & cost
-economic / political / social condition
-immigration / emigration policies
-market information
☆Entrepreneurship
* Human effort provided by owner of the firm, including risk
bearing + decision-making
* Return = profits
Soln:
When the supply is perfectly inelastic, the supply curve will not
shift upwards. When per-unit tax doubles, tax revenue doubles.
Elasticity of supply
∴The answer is D.
☆ Price Qd Qs
$6 60 40
$9 55 45
$12 50 50
$15 45 55
$18 40 60
(a) If the govt. fixes the production quota at 45 units, the market
price will be
A. $9
B. $12
C. $15
D. $18
(b) If the govt. uses a unit tax instead to fix the output at 45
units, the unit tax imposed will be
A. $3
B. $6
C. $9
D. $12
Soln: (a)
The answer is C.
(b) To make the seller only receive $9 when the price is at $15
(so that the output is 45), an unit tax of $6 should be imposed.
∴The answer is B.
Qd 120 100 80 75 60
Qs 80 80 80 80 80
If the govt. impose a tax of $5, the new equilibrium price
inclusive of tax will be
A. $25
B. $30
C. $35
D. $40
elasticity=
∴The answer is C.
Soln: The upward shift of the supply curve will reduce the
equilibrium quantity unless there is a perfectly inelastic demand.
∴The answer is D.
A. B. C.
☆ If price decreases
from $3 to P, the total
revenue will be
A. equal to $30
B. greater than $30
C. smaller than $30
☆ Price ($) 9 8 7 6 5 4 3 2 1
Qs 17 16 15 14 13 12 11 10 9
Qd 7 8 9 10 11 12 13 14 15
Suppose a per-unit fax of $4 is imposed on the supply of Good
X. The total social surplus is maximized without the tax. After
the tax, the deadweight loss is
A. $2
B. $4
C. $6
D. $8