Kiangsu-Chekiang College (Shatin)
Economics April Revision
(2002―2003)
Date : 2003/4/7
Time Allowed:
Minutes
Marks:________/_________
Class: ____________________
Name : ____________________ Class No.:_______________
A. Multiple-choice Questions
1.
Case I:
After imposing $10 per-unit sales tax on the producer of product Y, its per unit price
increases by $8.
Case II: After imposing $10 per-unit tax on the producer of product Y, its per unit price
increases by $6.
It means that product Y in Case I has a __________ elastic supply or has a __________ elastic
demand.
2.
A.
more …… more
B.
less …… more
C.
more …… less
D.
less …… less
From the following demand and supply table of product X., the equilibrium price and quantity
transacted of product X are
1
2
3
4
5
6
7
Quantity Demanded (units)
100
90
80
70
60
50
40
Quantity Supplied (units)
40
50
60
70
80
90
100
Unit Price ($)
A.
$1 and 40 units respectively.
B.
$2 and 50 units respectively.
C.
$3 and 60 units respectively.
D.
$4 and 70 units respectively.
Answer the following 9 questions with reference to the following demand and supply table of
product X.
1
2
3
4
5
6
7
Quantity Demanded (units)
100
90
80
70
60
50
40
Quantity Supplied (units)
40
50
60
70
80
90
100
Unit Price ($)
3.
When the unit price of product X increases from $1 to $2, its price elasticity of demand is
4.
5.
6.
7.
8.
9.
A.
elastic.
B.
inelastic.
C.
perfectly inelastic.
D.
perfectly elastic.
When the unit price of product X decreases from $6 to $5, its price elasticity of supply is
A.
elastic.
B.
inelastic.
C.
perfectly inelastic.
D.
perfectly elastic.
Suppose the government carries out an effective price ceiling control on product X, the
maximum price per unit is set at $3. Which of the following situations is most likely to occur?
A.
There is an excess supply of 20 units.
B.
There is an excess demand of 20 units.
C.
Quantity transacted increases by 10 units.
D.
The government has a surplus.
If the government sets the minimum unit price of product X at $2,
A.
there will be an excess supply of product X by 40 units.
B.
the consumer of product X will gain the largest benefit.
C.
shortage of product X will occur.
D.
the equilibrium price of product X will still be $4.
If the government sets an import quota of product X at 60 units,
A.
the per unit market price of product X is $5.
B.
the per unit market price of product X is $3.
C.
the quantity transacted of product X is 80 units.
D.
the total market value of product X is $280.
Suppose the government imposes $2 per-unit tax to the producer of product X. The total sales
revenue is
A.
$280.
B.
$300.
C.
$320.
D.
$360.
Suppose the government imposes $2 per-unit tax to the producer of product X. The total sales
tax burden of the sellers is
A.
$50.
B.
$60.
C.
$70.
D.
$80.
10. Suppose the government gives a $4 per-unit subsidy to the producer of product X. The new
total sales revenue is
A.
$120.
B.
$140.
C.
$160.
D.
$180.
11. Suppose the government gives a $4 per-unit subsidy to the producer of product X. Consumers’
share of the subsidy is
A.
$120.
B.
$140.
C.
$160.
D.
$180.
12.
If the demand in the above diagram is unitarily elastic, then
A.
ACMB > MKLE
B.
A0KB = MKLE
C.
ACMB = MKLE
D.
A0KB > C0LE
13. If the harvest of rice is bad, and the price elasticity of demand is inelastic,
A.
the income of the farmer will decrease.
B.
the income of the farmer will increase.
C.
the income of the farmer will remain unchanged.
D.
there is no relationship between the income of the farmer and price elasticity.
14. Suppose the supply of product X increases. Under which of the following situations, would the
unit price of product X remain unchanged?
A.
Its demand is elastic.
B.
Its demand is inelastic.
C.
Its demand is perfectly inelastic.
D.
Its demand is perfectly elastic.
15.
In the above diagram, S0, S1, D are unitarily elastic. The total revenue of the producer is $400,
Q1
= 0.4. What is the value of P1?
Q2
A.
2.50
B.
3.00
C.
3.75
D.
5.00
16. The feedback of ‘Anti-smoking campaign for the youth’ is very successful under huge
promotions last six months. The price of cigarettes decreases by 18%, and the quantity sold
decreases by 8%. It implies that
A.
the supply of cigarettes is inelastic.
B.
the demand of cigarettes is inelastic.
C.
whether the total income of the cigarette producers will increase or not depends on the
demand elasticity of cigarettes.
D.
substitutes for cigarettes are limited.
17. Suppose the supply of a certain product increases. Under which of the following situations,
would the price of it increase?
A.
The demand for its complements decreases.
B.
The supply of its substitutes decreases.
C.
The price of its competitive supply good decreases.
D.
The supply of it is perfectly inelastic.
18.
In the above diagram, the demand is unitarily elastic. The government’s total income from
per-unit sales tax is equal to the producers’ total income after tax. The tax burden of the
producers is
A.
$2 340.
B.
$1 560.
C.
$3 900.
D.
$1 950.
19. In late August, students is preparing for going back to school. Thus, the demand for stationery
in the market increases. The market price of stationery increases by 12%, and the total quantity
sold increases by 20%. Which of the following descriptions is LEAST possible?
A.
The total income of producers increases.
B.
Producing stationery is a capital-intensive production.
C.
The number of consumers in the stationery market increases.
D.
The labour engaged in producing stationery needs only simple training.
20. Suppose the technology of producing a certain good is improved. Under which of the
following situations, would the market price of that good remain unchanged?
(1) There is an effective price floor in the market.
(2) There is an effective price ceiling in the market.
(3) Only a slight increase in the price will make all the consumers to run away.
(4) Consumers do not care about the price.
A.
(1) and (3) only.
B.
(2) and (3) only.
C.
(1), (2) and (3) only.
D.
(1), (2) and (4) only.
21. PX = the price of good X
PY = the price of good Y
QY = the quantity sold for good Y
Which of the following pair(s) show that product X and Y are NOT substitutes to each other?
(1) PX increases by 20%; QY decreases by 15%.
(2) PX increases by 12%; QY increases by 18%.
(3) PX increases by 15%; QY remains constant.
(4) PX decreases by 10%; PY decreases by 8%.
A.
(1) only
B.
(2) only
C.
(1) and (3) only
D.
(3) and (4) only
22. Suppose the government gives a per-unit subsidy to the producers of product X.
A.
The demand elasticity will not affect the total income of the producers.
B.
If the demand elasticity is greater than the supply elasticity, the consumers’ share of
subsidy will be larger.
C.
If the demand is unitarily inelastic, producers will enjoy all share of subsidy.
D.
The higher the elasticity of demand, the more the producers' total income will be.
B. Short Questions
1.
2.
A toy factory produces toy A. According to some studies, its price elasticity of demand is 0.5.
If the factory owner wants to maximize the total revenue, how should he change the output of
toy A?
(5 marks)
On a demand curve (straight line), find out a point where producers can gain maximum total
revenue. Explain.
(6 marks)
3.
(a) Mrs Chan spends a fixed amount ($2 000) on food monthly. With the aid of a diagram,
explain Mrs Chan’s demand elasticity on food.
(4 marks)
(b) Suppose Mr Chan is promoted so that Mrs Chan’s household budget also increases. With
the aid of a diagram, explain whether Mrs Chan’s expenditure on food will be changed or
not.
(4 marks)
4.
Government imposes two-month-period fishing moratorium (休漁期) for breeding of fishes.
Will the total revenue of the fish ball producers increase or decrease? With the aid of a diagram,
state TWO reasons to support your arguments.
5.
(8 marks)
In order to protect bears, the Hong Kong government decides to prohibit the sale of all
medicine made with the ingredient of bear in April 2000 (i.e., 2 months later). Some Chinese
medical practitioners say that it is very difficult for them to find substitutes for bear-made
medicine.
(a) State the elasticity of the demand and supply of bear-made Chinese medicine within these
2 months. Explain.
(4 marks)
(b) It is expected that the price of the bear-made Chinese medicine will increase after the
prohibition of sale in the market. With the aid of a diagram, explain the market situation
of the bear-made Chinese medicine before the prohibition of sale.
(5 marks)
6.
(a) Define price elasticity of demand.
(2 marks)
(b) Given that when the price of good X falls from $2 to $1.8, the quantity demanded
increases by 30%. Calculate the price elasticity of demand for X.
(3 marks)
7.
Explain, with the aid of a demand and supply diagram, why a quota is more effective in
discouraging people from smoking cigarettes than a per-unit tax.
(9 marks)
8.
No matter what price a cup of coffee is, Mr Chan spends $300 on coffee per month. What is
Mr Chan’s price elasticity of demand for coffee? Explain.
(4 marks)
9.
Explain which item is less elastic in each of the following cases.
(a) The supply of vegetables in this week and the supply of vegetables in a year
(3 marks)
(b) The demand for vegetables and the demand for choi sum
(3 marks)
10. As a tradition, Chinese in Hong Kong usually go to worship their ancestors at Ching Ming
Festival.
Explain, with the aid of a demand and supply diagram, how the fares of the mini-bus taking
people to the graveyard are affected and how would the total earnings of the mini-bus
drivers/owners be affected at Ching Ming Festival.
(6 marks)
11. Suppose the government gives a per-unit subsidy to all students to buy a computer so as to
encourage information education. Indicate on a well-labelled demand and supply diagram how
the benefit is shared among the sellers and consumers.
(5 marks)
12. MD sellers claimed that when they have decreased the price of MDs, their total sales revenue
increased. Explain this phenomenon in terms of elasticity of demand.
(7 marks)
13. Assuming that in the cigarette market, the majority of consumers are habitual smokers, explain
whether total revenue will increase if the cigarette producers raise the price of cigarettes.
Illustrate with a diagram.
(10 marks)
14. When the price of Good A falls from $10 to $9.8, the quantity demanded rises from 200 units
to 210 units. Calculate the price elasticity of demand of Good A over the given price range.
(5 marks)
15. Name FOUR factors that affect elasticity of supply.
(4 marks)
16.
Food prices in restaurants have been kept low all these days. Apply the concept of demand
elasticity to explain why restaurants tend to cut prices.
(8 marks)
C. Structured Questions
1.
In Hong Kong, there are two markets for student textbook, i.e., new textbook market and
second-hand textbook market. They are substitutes to each other. (The following are two
isolated cases.)
(a) Suppose the production cost of new textbook increases, and the total revenues of the
sellers in the two markets increase. Explain this situation in both markets.
(7 marks)
(b) Suppose new textbook is a superior good, old textbook is an inferior good. In a certain
year, Hong Kong’s economy experienced recession, people’s income decreased, and the
production cost of textbook remained constant. With the aid of a diagram, explain the
changes in the revenues for the 2 markets and the textbook sellers.
(10 marks)
2.
Mrs Tung goes shopping at ‘Best Price Supermarket’ every week. The following table shows
the price changes of the goods at ‘Best Price Supermarket’ and the quantity of goods bought by
Mrs Tung this week.
Product
(I)
Wine
Original Price
New Price
$700 / bottle
$750 / bottle
Quantity Bought By
Mrs Tung
Decrease in consumption:
From 2 bottles to 1 bottle
(II) Orange
$4 / piece
$5 / piece
Decrease in consumption:
From 12 pieces to 10 pieces
(III) Apple
$2 / piece
$1.5 / piece
Increase in consumption:
From 10 pieces to 18 pieces
(IV) Coffee
$20 / can
$25 / can
Keep constant: 2 cans
(V) Toilet Paper
$30 / pack
$10 / pack
Increase in consumption:
(12 rolls)
From 1 pack to 3 packs
(a) Calculate the demand elasticity for the above five products.
(b) State THREE possible factors that may affect Mrs Tung’s consumption.
3.
News Extracts:
(10 marks)
(6 marks)
No. 1: Petroleum exporting countries reduce their production, leading to an increase in the
petroleum price. Both bus and taxi companies in Hong Kong request for increasing
their fares. The spokesman of these companies insists that this request is not for the
purpose of increasing their profit. On the contrary, their revenue would decrease.
No. 2: The government has regulated that wordings “Cigarette is Hazardous to Health”
should be printed on the package of cigarettes and imposed sales tax on the cigarette
sellers. However, the anti-smoking campaign seems not so successful.
No. 3: A few people have eaten poisonous vegetables incautiously. The vegetable sellers say
that the recent sales volume of Choi Sum (菜心) has decreased by 50%.
No. 4: Although the government has increased the first registration fee to a great extent, the
spokesman of Mercedes Benz says that their revenue increases sharply.
No. 5: Daimaru Department Store (大丸百貨公司) will close its business soon. In order to
clear their stocks, the store has decreased the prices of products for many times. A lot
of people queue outside the store for buying cheaper goods.
(a) Which of the above news extracts is unrelated to the price elasticity of demand? Explain
with the aid of a diagram.
(5 marks)
(b) (i)
With the aid of a diagram explain why an increase in the fare of taxi would lead to a
decrease in their revenue.
(6 marks)
(ii) Would the bus company face the same situation as taxi? Explain with the aid of a
diagram.
(6 marks)
(c) The anti-smoking campaign in Hong Kong is not very successful. Is there any
relationship between such result and the price elasticity of demand? Explain.
(3 marks)
(d) (i)
According to the news extract no. 4, what is the price elasticity of demand for Benz
in Hong Kong? Explain.
(2 marks)
(ii) Explain why the demand for Benz belongs to this type of price elasticity of demand.
(2 marks)
(e) (i)
What is the price elasticity of supply for the clearance sale of Daimaru Department
Store?
(1 mark)
(ii) With the aid of a diagram, explain the phenomenon of the long queue.
4.
(5 marks)
Mr Ma says, “As long as I can afford it, regardless of the price, I will not consume less
cigarettes.”
Mr Mak says, “I want to set a good example for my daughter. Thus, I will stop smoking
immediately.”
(a) Suppose all of the smokers’ behaviours in Hong Kong are the same as that of Mr Ma and
the government imposes a per-unit tax on cigarette producers. With the aid of a diagram,
explain
(i)
how would the equilibrium price and quantity transacted of cigarette change?
(7 marks)
(ii) how much tax burden would the cigarette producers bear?
(b) (i)
What is “the law of demand”?
(4 marks)
(2 marks)
(ii) Explain whether these two people's behaviours violate the law of demand. (4 marks)
5.
Since 1999, the fishing moratorium was enforced in South China Sea between June and July.
All fishermen should return to Hong Kong and cannot catch fishes.
(a) Explain the situation of the imported frozen seafood market between June and July with
the aid of diagrams.
(6 marks)
(b) After the fishing moratorium, the number of fishes in the South China Sea increases
largely; however, many fishermen still worry that the ending of fishing moratorium may
not have positive effects on their income. Explain the fishermen's worry with the aid of a
diagram.
(6 marks)
6.
Consider the following supply schedule of tomatoes.
Price ($) per Kg
Quantity Supplied (Kg) per Day
2
100
4
250
(a) Calculate the elasticity of supply over the price range from $2 to $4.
(5 marks)
(b) Explain how time affects the elasticity of supply of tomatoes.
(4 marks)
(c) Heavy rain has destroyed a huge crop of tomatoes. With the aid of a diagram, explain how
this affects the supply of tomatoes.
(4 marks)