2025 HKDSE Economics Practice Paper | DSE Mock

Suppose Country A is a small open economy that imports laptops. If the government imposes a specific tariff on imports of laptops, which of the following will occur? (1) Consumer surplus of laptops decreases. (2) Domestic production of laptops increases. (3) Total revenue of domestic producers must increase.

Miss Chan withdraws $50,000 from her savings account (savings deposit) in a licensed bank. She then places $30,000 as a time deposit in a restricted licence bank, and keeps the remaining $20,000 in her purse as cash. How will Hong Kong's money supply M1 and M2 be affected?

A theme park charges different admission fees for tourists and local residents. Which of the following is NOT a necessary condition for the theme park to practice price discrimination successfully?

Based on the table below, the law of diminishing marginal returns sets in when the ______________ unit of labor is employed. (Labor input: 1, 2, 3, 4, 5, 6; Total Product: 10, 24, 39, 52, 62, 70)

Suppose the government imposes a price ceiling below the equilibrium price on a good. If the market supply of the good is perfectly inelastic, which of the following statements is/are correct? (1) There will be a shortage of the good. (2) The quantity transacted will remain unchanged. (3) Producer surplus will decrease.

In a banking system, the required reserve ratio is 20%. Suppose a customer deposits $100,000 cash into Bank A. If banks do not hold excess reserves and there is no cash leakage, what is the maximum possible change in the money supply?

Alan chooses to study a master's degree instead of working. The tuition fee is $100,000 per year. If he works, his annual salary would be $250,000. If his salary offer increases to $300,000 and the university offers him a scholarship of $20,000 (which directly offsets tuition), how will his opportunity cost of studying the master's degree change?

In a given year, an economy records the following transactions: Private consumption expenditure = $800 million, Gross domestic fixed capital formation = $250 million, Changes in inventories = -$30 million, Government consumption expenditure = $150 million, Exports of goods and services = $400 million, Imports of goods and services = $450 million. What is the Gross Domestic Product (GDP) of this economy?

The table below shows the production of Country X and Country Y with the same amount of resources: Country X can produce 20 units of Good A OR 10 units of Good B. Country Y can produce 15 units of Good A OR 15 units of Good B. Which of the following is a mutually beneficial terms of trade for both countries?

When marginal cost (MC) is lower than average variable cost (AVC), which of the following must be correct? (1) Average variable cost (AVC) is decreasing. (2) Average total cost (ATC) is decreasing. (3) Marginal cost (MC) is decreasing.

Which of the following will definitely increase after a small importing country imposes a tariff on an imported good?

Suppose the required reserve ratio of the banking system is \(20\%\) and banks hold no excess reserves. The public initially holds \(\$100\) million in cash. A customer deposits \(\$50\) million of cash into a bank. What is the maximum possible change in the money supply?

A cinema charges a lower price for students than for adults. Which of the following is/are the necessary condition(s) for the cinema to practice price discrimination? (1) Students and adults have different price elasticities of demand for the movie tickets. (2) The cinema can prevent students from reselling their tickets to adults. (3) The average cost of providing seats to students is lower than that to adults.

A firm's labor and total output in the short run are as follows: 1 unit of labor produces 10 units of output; 2 units of labor produce 25 units; 3 units produce 42 units; 4 units produce 56 units; and 5 units produce 65 units. The law of diminishing marginal returns begins to set in when the ________ unit of labor is employed.

In Country A, one unit of resources can produce 10 units of Good X or 5 units of Good Y. In Country B, one unit of resources can produce 8 units of Good X or 2 units of Good Y. If the mutually beneficial terms of trade is 1 unit of Y = 3 units of X, which of the following statements is correct?

Miss Wong uses a credit card to purchase a laptop priced at $8,000, and agrees to pay the credit card company next month. Which functions of money are performed by the $8,000 in this transaction? (1) Medium of exchange, (2) Unit of account, (3) Standard of deferred payment

A monopolist originally charges a single price. Now, it changes to practice perfect price discrimination (first-degree price discrimination). Which of the following is a consequence of this change?

A firm doubles all of its inputs in the long run. As a result, its output increases by 80%. This firm is experiencing:

Which of the following are the effects of imposing an import quota on a good by an importing country? (1) Domestic consumption of the good decreases. (2) Domestic production of the good increases. (3) Total revenue of domestic producers increases.

Suppose there is a widespread adoption of mobile payment systems in an economy. According to the liquidity preference theory, how will this affect the money demand and the nominal interest rate in the money market?

Country A and Country B both produce Clothing and Food. The opportunity costs of producing 1 unit of Clothing are 2 units of Food in Country A, and 4 units of Food in Country B. Suppose the terms of trade is 1 unit of Clothing = 3 units of Food, and there is a transportation cost of 0.5 units of Food for shipping 1 unit of Clothing, which is paid by the exporter. What is the net gain to Country A per unit of Clothing exported?

Suppose a small open economy replaces an import tariff with an import quota that restricts the import volume to the same level. If the quota licenses are distributed to foreign exporters for free, then

Suppose the domestic currency depreciates. If the foreign demand for the country's exports is price elastic, and the domestic demand for imports is unit elastic, how will the total value of exports (in domestic currency) and the total value of imports (in domestic currency) change?

The banking system of an economy has the following balance sheet:
Reserves: $500
Loans: $1500
Deposits: $2000
The required reserve ratio is 20%. Suppose the central bank increases the required reserve ratio to 25%, and at the same time, the public deposits $100 of cash into the banking system. Assuming banks do not hold excess reserves, what is the maximum change in the money supply?

Under high inflation, a country's citizens start using US dollars instead of the local currency to quote prices of houses and cars, while they still use the local currency for daily transactions but immediately convert any cash savings into gold. In this scenario, the local currency is losing its function as a ________, and has lost its function as a ________.

Suppose the public expects the inflation rate to rise in the future, while the central bank increases the money supply by conducting open market purchases. What will be the effect on the nominal interest rate and the equilibrium quantity of money?

A theme park charges local residents a lower admission fee than tourists. Which of the following are necessary conditions for this pricing strategy to be profitable price discrimination?

Compared to a single-price monopoly, a perfect (first-degree) price-discriminating monopoly will

The table below shows the production of a firm with a fixed amount of capital:

| Number of Workers | Total Product (units) |
|---|---|
| 1 | 15 |
| 2 | 32 |
| 3 | 45 |
| 4 | 55 |
| 5 | 60 |

The law of diminishing marginal returns sets in when the ________ worker is employed.

Which of the following statements about short-run cost curves is correct?

The table below shows the amount of labor hours required to produce one unit of Good X and Good Y in Country A and Country B:

| | Good X | Good Y |
|---|---|---|
| Country A | 2 hours | 6 hours |
| Country B | 4 hours | 8 hours |

Suppose Country A exports Good X to Country B. The transportation cost per unit of Good X is 0.1 units of Good Y, which is borne by Country A. Which of the following is the mutually beneficial range of the terms of trade (T) (in terms of units of Good Y per unit of Good X) for both countries?

Suppose a banking system has the following balance sheet:

| Liabilities ($ million) | Assets ($ million) |
|---|---|
| Deposits: 1,000 | Reserves: 200
Loans: 800 |

The required reserve ratio is 20%. Suppose the banking system initially holds no excess reserves. If the public withdraws $50 million of cash from their bank accounts, and keeps half of this amount as cash holdings while depositing the remaining half back into the banking system, what is the maximum possible change in the money supply?

A theme park charges a lower admission fee for students than for adults. Which of the following is NOT a necessary condition for this practice to increase the theme park's profit?

The table below shows the production of a firm with a fixed amount of capital in the short run:

| Number of workers | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
| Total product (units) | 15 | 32 | 51 | 65 | 75 |

If the wage rate of each worker is $100 per day and the cost of capital is $500 per day, at which level of employment does the average variable cost (AVC) reach its minimum?

Suppose a small open economy imports Good Z. The government replaces an existing import quota with an import tariff that results in the same quantity of imports. Compared to the quota, the tariff will:

Mr. Chan bought a flat last year for $6 million. He paid a down payment of $2 million and agreed to pay the remaining $4 million plus interest over 20 years in monthly installments. Which of the following functions of money are illustrated in this scenario?

(1) Medium of exchange
(2) Unit of account
(3) Store of value
(4) Standard of deferred payment

An amusement park charges an entry fee of $100 and a ride fee of $20 per ride. This pricing strategy:

Which of the following would lead to an upward shift of the long-run average cost (LRAC) curve of a manufacturing firm?

Suppose a country initially imports 100 units of Good X at a world price of $10. The government imposes an import tariff of $2 per unit, and the import quantity falls to 60 units. Which of the following statements is correct?

Which of the following would lead to an increase in the nominal interest rate?

(1) An increase in the popularity of electronic payment methods.
(2) An open market purchase of government bonds by the central bank.
(3) An increase in nominal national income.
(4) An increase in the required reserve ratio of banks.

Country X and Country Y produce only two goods, Toys (T) and Clothing (C). The table below shows the amount of resources (in man-hours) required to produce one unit of each good:

| | 1 unit of Toys | 1 unit of Clothing |
|---|---|---|
| Country X | 4 man-hours | 8 man-hours |
| Country Y | 6 man-hours | 18 man-hours |

Suppose both countries trade with each other. The terms of trade are 1 unit of Clothing = 2.5 units of Toys. Which of the following is correct?

Suppose the balance sheet of the banking system in an economy is as follows:

* Reserves: $400 million
* Loans: $1,600 million
* Deposits: $2,000 million

The public always holds $500 million of cash. Suppose the minimum reserve ratio is 20%. If the public deposits $100 million of cash into the banking system, and banks lend out all excess reserves, what will be the maximum possible change in the money supply (M1)?

Which of the following is NOT a necessary condition for a monopolist to practice effective price discrimination?

The table below shows the total product and total cost of a price-taking firm in the short run:

| Number of workers | Total Product (units) | Total Cost ($) |
|---|---|---|
| 0 | 0 | 100 |
| 1 | 10 | 180 |
| 2 | 25 | 240 |
| 3 | 35 | 320 |
| 4 | 42 | 420 |

Which of the following statements is correct?

Suppose the exchange rate of the Hong Kong Dollar (HKD) is linked to the US Dollar (USD) at a fixed rate of 7.80 HKD = 1 USD. If the Japanese Yen (JPY) depreciates against the USD, which of the following is most likely to happen?

Country A is a small open economy. Suppose the world price of smartwatches is \$100. The domestic demand and supply curves are standard. To protect domestic smartwatch manufacturers, the government of Country A imposes an import tariff of \$20 per unit.\n(a) Explain, with the aid of a diagram, the change in consumer surplus of Country A after the imposition of the tariff. (3.5 marks)\n(b) Other than the loss of consumer surplus, explain ONE disadvantage of this policy to the domestic economy. (2 marks)

Suppose there are two countries, Country X and Country Y, producing two goods, Clothing and Food, with the same amount of resources. Their maximum outputs are shown in the table below:\n\n| Country | Clothing (units) | | Food (units) |\n| --- | --- | --- | --- |\n| Country X | 20 | OR | 40 |\n| Country Y | 30 | OR | 90 |\n\n(a) Calculate the opportunity cost of producing 1 unit of Clothing for both countries. (2 marks)\n(b) Explain which country has the comparative advantage in producing Clothing. (1.5 marks)\n(c) If the terms of trade are 1 unit of Clothing for 2.4 units of Food, explain whether both countries will gain from trade. (2 marks)

Suppose the balance sheet of a commercial banking system is as follows:\n\n| Reserves | \$300 million | Deposits | \$1,500 million |\n| --- | --- | --- | --- |\n| Loans | \$1,200 million | | |\n\nAssume the banking system holds no excess reserves and the public does not hold any cash initially.\n(a) Calculate the required reserve ratio. (1 mark)\n(b) Suppose a depositor withdraws \$50 million of cash from the banking system and holds it as cash in hand. Calculate the maximum possible change in money supply. Show your workings. (4.5 marks)

With the rapid development of mobile payment systems (e.g., Apple Pay, WeChat Pay), citizens in Country Z tend to hold less cash and demand deposits for transactions.\n(a) Explain how this development affects the transaction demand for money and the total money demand. (2 marks)\n(b) With the aid of a diagram, explain how this development affects the equilibrium interest rate of Country Z. (3.5 marks)

A local theme park charges different admission fees for tourists and local residents. Local residents enjoy a 30% discount.\n(a) Explain why the theme park is able to practice price discrimination. State TWO necessary conditions. (2.5 marks)\n(b) Explain, with economic reasoning, which group (tourists or local residents) will be charged a higher price. (3 marks)

A monopolist software developer originally charges a single price of \$500 per license for its professional design software. It is considering adopting 'perfect price discrimination' (first-degree price discrimination), where it charges each customer their maximum willingness to pay.\n(a) State how the output level under perfect price discrimination compares to the output level under single pricing. (1.5 marks)\n(b) Explain how this change in pricing strategy affects:\n(i) Consumer surplus. (2 marks)\n(ii) Allocative efficiency. (2 marks)

Suppose a bakery has a fixed amount of capital (ovens and mixers) and hires workers as variable factors. The production data is shown below:\n\n| Number of Workers | Total Product of Bread (units per day) |\n| --- | --- |\n| 1 | 50 |\n| 2 | 110 |\n| 3 | 180 |\n| 4 | 230 |\n| 5 | 270 |\n| 6 | 300 |\n\n(a) Calculate the marginal product of each worker. (1.5 marks)\n(b) State the Law of Diminishing Marginal Returns. (1.5 marks)\n(c) Explain whether the above data illustrates the Law of Diminishing Marginal Returns. If yes, at which worker does diminishing marginal returns set in? (2.5 marks)

A manufacturing firm plans to double its production scale by doubling all of its inputs (labor and capital).\n(a) Under what condition would the firm experience 'economies of scale'? Explain with reference to the percentage change in output and average cost of production. (2.5 marks)\n(b) State TWO possible sources of economies of scale for an expanding firm. (2 marks)\n(c) Explain why average cost might eventually rise if the firm continues to expand its scale of production indefinitely. (1 mark)

Country A and Country B both produce Microchips and Rice with the same amount of resources. The table below shows their maximum outputs of the two goods: Country A: 20 units of Microchips OR 10 units of Rice; Country B: 10 units of Microchips OR 15 units of Rice. (a) (i) Calculate the opportunity cost of producing 1 unit of Microchips in both countries. (ii) Explain which country has a comparative advantage in producing Microchips. (iii) Determine the range of mutually beneficial terms of trade for 1 unit of Microchips. (b) Suppose Country A imports Rice from Country B. The government of Country A decides to impose a tariff of \$x per unit on imported Rice. With the aid of a diagram, explain how this tariff affects the consumer surplus and deadweight loss in Country A's Rice market. (c) Suppose Country A's currency depreciates against Country B's currency. Explain how this depreciation affects Country A's trade balance in the short run and in the long run.

Consider the following balance sheet of the commercial banking system in an economy: Reserves: \$300 million, Loans: \$900 million, Deposits: \$1200 million. Assume that banks hold no excess reserves and the non-bank public holds \$100 million in cash. (a) (i) Calculate the required reserve ratio of the banking system. (ii) Calculate the initial money supply (M). (iii) Suppose the public deposits \$50 million of cash into the banking system. Calculate the maximum possible change in the money supply. Show your workings. (b) Suppose the central bank increases the required reserve ratio to 30%. (i) Explain how this change affects the money creation capability of the banking system. (ii) With the aid of a money market diagram, explain how this policy affects the equilibrium interest rate and investment expenditure. (c) Apart from being a medium of exchange, identify and briefly explain which function of money is most affected when hyperinflation occurs.

Fantasy World is a monopoly theme park. (a) Fantasy World hires workers to operate rides. The daily production schedule is shown below: 1 worker produces 5 units of output; 2 workers produce 12 units; 3 workers produce 18 units; 4 workers produce 22 units; 5 workers produce 25 units. (i) State and explain the law of diminishing marginal returns. Determine at which worker this law begins to operate. (ii) Distinguish between the short run and the long run in production. Can a firm change its fixed assets in the short run? Explain. (b) Fantasy World charges tourists \$300 per ticket and local residents \$180 per ticket. (i) Name this pricing practice and state THREE conditions required for Fantasy World to practice it successfully. (ii) Explain how the price elasticity of demand for tickets differs between tourists and local residents. Relate this to the pricing strategy. (iii) Discuss whether this pricing practice will increase or decrease the allocative efficiency (total social surplus) of the market compared to a single-price monopoly.

CloudTech is a software firm with monopoly power in the market for cloud storage. It decides to sell its services to two separate groups of customers: professionals and students. (a) Identify and explain three conditions that must be satisfied for CloudTech to practice third-degree price discrimination. (4 marks) (b) Suppose CloudTech's marginal cost (\(MC\)) of providing the service is constant. The price elasticity of demand for professionals is lower than that for students at any given price. (i) With the aid of a diagram, show and explain how CloudTech determines the profit-maximizing output and price in each of the two markets under third-degree price discrimination. (6 marks) (ii) Using the relation between marginal revenue (\(MR\)), price (\(P\)), and price elasticity of demand (\(E_d\)), explain why the price charged in the professional market is higher than that in the student market. (3 marks) (c) Suppose CloudTech previously charged a uniform single price to both markets. If it now switches to third-degree price discrimination, would the allocative efficiency of the market necessarily decrease? Explain. (3 marks)

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