Senior Secondary (HKDSE) · Economics

Scarcity, choice and opportunity cost: Practice Questions

5 multiple-choice questions marked as you go, and 1 written questions with worked solutions. All on Scarcity, choice and opportunity cost.

6 questions13 marksFree, no account

Question 1

1 mark

Which of the following is a necessary consequence of scarcity?

Question 2

1 mark

Country S uses all its resources and produces two goods, X and Y. The table below shows Country S's output and consumption data before and after trade:

	Good X (units)	Good Y (units)
Output under autarky	20	or 100
Output with specialisation	0	or 100
Consumption with trade	25	or 70
Consumption under autarky	15	or 60

If Country S specialises fully in Good Y, calculates its total gain from trade in terms of Good X.

Question 3

1 mark

Country R uses all its resources and produces two goods, Furniture (F) and Chemicals (K). The table below shows Country R's output and consumption data before and after trade:

	Furniture (F) (units)	Chemicals (K) (units)
Output under autarky	150	or 75
Output with specialisation	0	or 75
Consumption with trade	120	or 55
Consumption under autarky	100	or 40

If Country R specialises fully in Chemicals, calculates its total gain from trade in terms of Furniture (F).

Question 4

1 mark

Which of the following is a characteristic of a free good?

Question 5

1 mark

Country V uses all its resources and produces two goods, Cereal (C) and Textiles (T). The table below shows Country V's output and consumption data before and after trade:

	Cereal (C) (units)	Textiles (T) (units)
Consumption with trade	80	40
Consumption under autarky	70	20

If Country V specialises fully, calculate its total gain from trade in terms of Textiles (T), assuming the gain is defined as the increase in the consumption of Textiles.

Question 6

8 marks

Mr. Wong is currently employed as a software engineer with a monthly salary of $ \$50,000 $. He is considering resigning from his job to start a mobile app development firm. To start the firm, he needs to withdraw $ \$1,200,000 $ from his savings account, which currently earns an annual interest rate of $ 3\% $. The monthly operating expenses (rent and utilities) for the new firm are estimated at $ \$20,000 $.

(a) Define opportunity cost. Calculate the monthly opportunity cost to Mr. Wong of starting his own firm. (3 points)

(b) Before making his final decision, Mr. Wong spent $ \$30,000 $ on a non-refundable market feasibility study last month. Explain whether this $ \$30,000 $ should be included in the opportunity cost of starting the firm today. (2 points)

(c) If the market interest rate increases to $ 5\% $ per annum, how would the opportunity cost of starting the firm be affected? Explain your answer in terms of the "cost of earlier availability of resources". (2 points)

(d) If Mr. Wong’s firm becomes extremely successful and he becomes one of the wealthiest people in the world, would he still face the problem of scarcity? Explain. (1 point)

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