FREE HKDSE PRACTICE PAPER

HKDSE Economics Paper 2 Mock Paper (2028 Onwards)

This generated sample contains 13 questions using the 2028-onwards section allocation: 44 marks for Section A, 56 for Section B and 20 for Section C. Allow 2 hours 30 minutes. Questions cover compulsory microeconomics and macroeconomics, with two elective alternatives in Section C; answer one. Some early questions are multiple choice, so this is a mixed-format practice sample rather than an exact reproduction of the official Paper 2 question format.

13 questions120 marks2 hr 30 min

Download question paper (PDF)

An original AI-generated practice paper from Studify. This is an independent sample, not an official HKEAA paper.

Paper structure

Section A8 questions · 44 marks
Section B4 questions · 56 marks
Section C1 questions · 20 marks

Topics in this sample

Basic economic concepts
Firms and production
Market and price
Measurement of economic performance
International trade and finance
Money and banking
National income determination and price level
Macroeconomic problems and policies
Efficiency, equity and the role of government
Elective 2: Extension of trade theory, economic growth and development
Competition and market structure
Elective 1: Monopoly pricing, anti-competitive behaviours and competition policy

Download PDF

100%

Hong Kong Diploma of Secondary Education Examination Mock Paper

Economics

Paper 2: Structured and Essay Questions (2028 onwards)

Time Allowed: 2 hr 30 minTotal Marks: 120

INSTRUCTIONS TO CANDIDATES:

This paper consists of multiple sections.
Answer all compulsory questions. Follow the choice instructions for optional questions.
Write your answers in the spaces provided.
Unless otherwise specified, all working must be clearly shown.
Unless otherwise specified, numerical answers should be either exact or correct to 3 significant figures.

Generated by studify.life • 16/10/2026

A

Question 1

A student has one free afternoon and can either attend a concert or work a shift earning $400. The student chooses to attend the concert. What is the opportunity cost of this choice?(2 marks)

The concert ticket price only

The $400 wage forgone, together with any other best alternative forgone

All the activities the student could have done that afternoon

The student's total income for the week

Question 2

A firm employs more workers while keeping its factory size and machinery fixed. Output rises, but each additional worker adds less output than the previous worker. Which statement best describes this situation?(2 marks)

The firm is experiencing diminishing marginal returns to labour in the short run

The firm's total output must be falling

The firm is experiencing economies of scale

The marginal product of labour is increasing

Page2

Question 3

In a competitive market, the government imposes a binding maximum price below the original equilibrium price. Assuming demand and supply are otherwise unchanged, which outcome is most likely?(2 marks)

A surplus, because quantity supplied exceeds quantity demanded

A shortage, because quantity demanded exceeds quantity supplied

An increase in both demand and supply

The market price rises to a level above the original equilibrium

Question 4

A Hong Kong resident buys a newly produced machine made overseas. Which statement about Hong Kong's GDP is correct, assuming the machine is not produced in Hong Kong?(2 marks)

The machine's full value is included in Hong Kong's GDP because the buyer is a Hong Kong resident

The machine's value is excluded from Hong Kong's GDP because GDP measures production within Hong Kong

The machine's value is included in Hong Kong's GDP only if it is paid for in Hong Kong dollars

The machine's value is counted as Hong Kong exports

Question 5

A small Hong Kong bakery has limited oven time and labour. It can produce bread and cakes using these scarce resources.

(a)

Explain why the bakery faces the economic problem of choice. In your answer, identify scarcity and the role of opportunity cost.

(3 marks)

Page3

Question 5 (continued)

(b)

The bakery can use an additional hour of oven time either to make 30 loaves of bread or 10 cakes. Calculate the opportunity cost of producing 1 cake in terms of loaves of bread.

(3 marks)

(c)

State one reason why the bakery's production possibility frontier may shift outwards over time.

(2 marks)

Question 6

The diagram shows the initial demand and supply conditions in a market for takeaway meals. A rise in nearby office employment increases consumers' income. Assume takeaway meals are a normal good and all other factors remain unchanged.

(a)

Explain the effect of the income rise on the demand for takeaway meals and distinguish a change in demand from a change in quantity demanded.

(3 marks)

Page4

Question 6 (continued)

(b)

Using a demand-and-supply diagram, explain the likely changes in the market equilibrium price and quantity. Do not calculate numerical values.

(4 marks)

(c)

Suppose the price of takeaway meals is temporarily prevented from adjusting. Explain the resulting market pressure and state one possible non-price means of allocating the meals.

(3 marks)

Question 7

The following simplified figures are for an economy in one year. All figures are in billions of local currency units.

Selected annual economic data

Item	Value
Consumption expenditure	620
Investment expenditure	180
Government expenditure on final goods and services	210
Exports	260
Imports	290
Nominal GDP	980
GDP deflator	105

(a)

Use the expenditure approach to calculate GDP from the expenditure components in the table.

(3 marks)

(b)

Calculate real GDP, using the GDP deflator shown and taking the base-year deflator as 100. Give your answer to one decimal place.

(4 marks)

Page5

Question 7 (continued)

(c)

State one reason why a rise in real GDP per capita does not necessarily mean that every resident is better off, and explain your answer.

(3 marks)

Question 8

A commercial bank receives a new cash deposit of $10,000. Assume the required reserve ratio is 10%, the bank initially has no excess reserves, and all loans are redeposited in the banking system. Ignore cash leakage and other constraints.

(a)

Calculate the required reserve and the maximum initial loan that the bank can make from the deposit.

(3 marks)

(b)

Calculate the maximum total increase in bank deposits generated by the original deposit under the assumptions given.

(3 marks)

(c)

Explain one reason why the actual increase in the money supply may be smaller than the theoretical maximum.

(2 marks)

Page6

B

Question 9

An economy experiences a fall in private investment and a slowdown in its major export markets. The economy has spare productive capacity initially, but inflation has recently accelerated.

(a)

The marginal propensity to consume is 0.8. Calculate the simple expenditure multiplier and state one assumption underlying its use.

(3 marks)

(b)

Using the aggregate expenditure model, explain how the stated changes can affect equilibrium real output and employment in the short run.

(5 marks)

(c)

Assess whether expansionary fiscal policy is an appropriate response. Your answer should consider both the output gap and the risk of inflation, and reach a supported conclusion.

(6 marks)

Page7

Question 10

Consider government intervention in two settings: provision of street lighting in a district and a policy intended to reduce emissions from road transport in Hong Kong.

(a)

Explain why a private market may underprovide street lighting, referring to the characteristics of a public good and the free-rider problem.

(4 marks)

(b)

Explain how a per-unit tax on emissions or fuel can reduce road-transport emissions. State one condition that affects the size of the reduction.

(5 marks)

(c)

Assess the claim that an emissions tax is necessarily the fairest and most efficient policy for reducing transport pollution. Consider at least two affected groups or policy concerns.

(5 marks)

Page8

Question 11

The table gives illustrative annual data for two economies. They produce only garments and electronic components. Production resources can be reallocated between the two goods within each economy.

Maximum annual output with existing resources

Economy	Garments (thousand units)	Electronic components (thousand units)
Economy H	120	60
Economy R	80	80

(a)

Calculate the opportunity cost of producing 1 thousand units of electronic components in each economy. Identify which economy has a comparative advantage in producing components.

(4 marks)

(b)

Explain how specialization and trade could allow the two economies to consume combinations beyond their individual production possibilities. State a condition on the terms of trade for mutually beneficial exchange.

(4 marks)

(c)

Suppose Economy H considers imposing a tariff on imported components to protect domestic producers. Assess the likely effects on consumers, producers, government revenue and resource allocation. Reach a reasoned conclusion.

(6 marks)

Page9

Question 12

A food-delivery platform operates in a market where network effects and control over customer data may make entry difficult. Restaurants can use more than one platform, but many consumers prefer platforms with a wide choice of restaurants.

(a)

Explain how network effects and an entry barrier can strengthen the market power of an established platform.

(4 marks)

(b)

Explain two possible consequences of market power for consumers or restaurants, distinguishing a short-run gain from a possible longer-run concern.

(4 marks)

(c)

Assess whether a competition authority should restrict the platform from offering exclusive discounts to restaurants that use it. Explain the case for and against intervention and state what further evidence would be useful.

(6 marks)

Page10

C

Question 13

Answer ONE of the two elective alternatives below. Each alternative carries 20 marks.

Alternative 1

Elective 1: Monopoly pricing, anti-competitive behaviours and competition policy. A single firm supplies a local market for a service. Its demand is downward sloping, and the firm can choose its price and output. A regulator is considering a price cap after complaints about high charges and poor service.

(20 marks total)

(a)

Explain why a profit-maximising monopolist may restrict output and charge a price above marginal cost. Use the relationship between demand, marginal revenue and marginal cost in your explanation.

(5 marks)

(b)

Explain how a binding price cap could affect the firm's price, output and profit. State one possible unintended consequence if the cap is set too low.

(4 marks)

(c)

Distinguish price discrimination from predatory pricing. For each, identify a circumstance in which the conduct may harm competition or consumers.

(5 marks)

Page11

Question 13 · Alternative 1 (continued)

(d)

Assess whether a price cap is preferable to relying on competition policy to address the firm's market power. Consider efficiency, consumer protection, information and implementation, and reach a supported conclusion.

(6 marks)

Alternative 2

Elective 2: Extension of trade theory, economic growth and development. An economy with a large pool of relatively low-skilled labour exports labour-intensive products. It is considering deeper trade integration and investment in education, transport infrastructure and technology. The government also wants growth to improve living standards broadly.

(20 marks total)

(a)

Use factor endowment theory to explain why the economy may initially export labour-intensive products and import capital-intensive products.

(5 marks)

(b)

Explain how trade integration and foreign investment could contribute to productivity growth, while identifying one risk or limitation.

(5 marks)

Page12

Question 13 · Alternative 2 (continued)

(c)

Distinguish economic growth from economic development and explain why growth in real GDP alone is an incomplete measure of development.

(4 marks)

(d)

Assess whether education and infrastructure investment can ensure that trade-led growth improves living standards broadly. Discuss distributional and sustainability concerns and reach a supported judgment.

(6 marks)

Page13

Model answers

Choose a question to reveal the saved solution and marking guidance. Try it yourself first.

Question 12 marks

Correct option: B

Correct option: B. Opportunity cost is the value of the next best alternative forgone when a choice is made. Here the next best alternative stated is earning $400. A is incomplete because the ticket price is a monetary cost, not necessarily the opportunity cost. C incorrectly includes every alternative rather than the next best alternative. D is unrelated to the choice.

Question 22 marks

Correct option: A

Correct option: A. With at least one factor fixed, successively adding a variable factor can eventually cause its marginal product to fall. Total output can still rise, so B is wrong. Economies of scale concern changes in long-run average cost as scale changes, not the short-run change described, so C is wrong. D contradicts the stated fall in additional output.

Question 32 marks

Correct option: B

Correct option: B. A binding maximum price is below equilibrium. At that lower price, quantity demanded is greater than quantity supplied, creating a shortage. A describes the opposite imbalance. C is incorrect because a price control does not itself shift the demand or supply curves. D contradicts the imposed maximum.

Question 42 marks

Correct option: B

Correct option: B. GDP measures the value of final goods and services produced within a territory during a period. The machine is produced overseas, so it is not part of Hong Kong GDP. A confuses domestic production with residents' expenditure. Currency of payment does not determine where production is recorded, so C is wrong. The machine is an import, not an export, so D is wrong.

Question 58 marks

5(a): Resources such as oven time and labour are limited relative to possible uses (1 mark for scarcity). The bakery therefore has to choose how to allocate resources between bread and cakes (1 mark). Choosing one use means giving up the next best alternative; this forgone alternative is the opportunity cost (1 mark). 5(b): 30 loaves are forgone to make 10 cakes (M1). Opportunity cost per cake = 30 / 10 = 3 loaves (A1). Correct unit and interpretation, 3 loaves of bread forgone per cake, (A1). 5(c): One valid reason, such as investment in a more productive oven, improved production technology, an increase in skilled labour, or better access to productive resources (1 mark). Explanation that this raises the maximum feasible output of one or both goods (1 mark).

Question 610 marks

6(a): Since the meals are a normal good, higher income raises demand (1). Demand shifts right; this is a change in demand caused by a non-price determinant (1). A change in quantity demanded is movement along a given demand curve caused by a change in the good's own price (1). 6(b): A correct diagram shows D₀ shifting right to D₁ while S₀ is unchanged (M1). The new intersection is at a higher price (A1) and a greater quantity (A1). Explanation: at the original price, the increase in demand creates excess demand; price is bid up, inducing producers to supply more and consumers to reduce quantity demanded until a new equilibrium is reached (C1). 6(c): If price is held at the old level, quantity demanded exceeds quantity supplied, producing a shortage (M1). Buyers compete for limited meals, for example through queues or waiting time (A1). One valid non-price allocation method, such as first-come-first-served, rationing, or priority allocation, earns (A1).

Question 710 marks

7(a): GDP = C + I + G + (X − M) (M1). Net exports = 260 − 290 = −30 (A1). GDP = 620 + 180 + 210 − 30 = 980 billion, matching the nominal GDP shown (A1). 7(b): Real GDP = nominal GDP × 100 / GDP deflator (M1). Substitution: 980 × 100 / 105 (M1). Real GDP = 933.3 billion to one decimal place (A1). Correct units/rounding (A1). 7(c): One valid reason with explanation: for example, income may be distributed unevenly, so average real GDP per capita can rise while lower-income residents' real incomes fall or rise less (1+1); alternatively, GDP per capita does not fully reflect leisure, environmental quality, unpaid work, or access to public services, with a relevant explanation (1+1).

Question 88 marks

8(a): Required reserve = 10% ×

10,000 =

1,000 (M1,A1). Maximum initial loan =

10,000 −

1,000 =

9,000 (A1). 8(b): Deposit multiplier = 1 / required reserve ratio = 1 / 0.10 = 10 (M1). Maximum total deposits =

10,000 × 10 = $100,000 (A1). State that this is the total deposit expansion, including the original deposit, rather than an additional $100,000 on top (A1). 8(c): One reason and explanation, e.g. borrowers may keep some loan proceeds as cash, reducing redeposits and subsequent rounds of lending (M1); or banks may hold excess reserves / lack creditworthy borrowers, so actual lending is below the assumed maximum (A1).

Question 914 marks

9(a): Multiplier k = 1 / (1 − MPC) (M1). k = 1 / 0.2 = 5 (A1). One assumption: prices are fixed over the relevant range; alternatively, no induced imports, taxes, saving changes beyond the MPC relationship, or capacity constraint (A1). 9(b): Lower investment reduces autonomous expenditure (M1); weaker export markets reduce exports and net exports (M1). In the aggregate expenditure model, planned expenditure falls, so firms experience unplanned inventory accumulation and reduce output (A1). Lower output reduces derived demand for labour and employment (A1). The initial spending fall can be multiplied through successive rounds of lower income and consumption, subject to leakages (C1). 9(c): For expansionary fiscal policy, a rise in government spending or a tax reduction increases planned expenditure and can raise output and employment, especially with spare capacity (M1,A1). The multiplier may make the effect larger than the initial injection, though imports, saving and taxation limit it (A1). Against: inflation has accelerated; if the economy is near capacity or supply constraints bind, extra demand can mainly raise the price level (M1,A1). Fiscal expansion may also worsen the budget balance, and its effects may arrive with a time lag (A1). Judgment: policy is appropriate only if the output gap is substantial and inflationary pressures are not mainly supply-driven; a targeted, temporary measure combined with monitoring or supply-side action is preferable (C1). Credit an alternative supported judgment.

Question 1014 marks

10(a): Street lighting is largely non-rival in consumption (1) and difficult to exclude non-payers from using (1). A provider cannot readily charge each beneficiary according to use (1), so individuals have an incentive to free-ride and understate willingness to pay; private provision may be below the socially efficient level (1). 10(b): Emissions impose an external cost on others, so without intervention private decision-makers do not bear the full social cost (M1). A per-unit tax raises the private cost of emitting or using fuel (M1), encouraging less driving, cleaner vehicles, or other substitution (A1). Lower emissions improve allocative efficiency if the tax brings private incentives closer to social costs (A1). The size of the reduction depends on price elasticity of demand / availability of substitutes / ability to alter travel behaviour (A1). 10(c): Efficiency argument: a tax can create an ongoing incentive to abate emissions and allow firms or drivers to choose the least-cost reductions; revenue can fund public transport or rebates (M1,A1). Equity concern: the tax may take a larger share of income from lower-income households, especially where they cannot avoid car use (M1,A1). Other valid concerns include difficulties measuring marginal external damage, congestion or emissions differing by location/time, effects on businesses, and acceptability. Evaluation: targeted rebates or improved public transport can address distributional effects while retaining the price signal; a tax is not automatically fair or perfectly efficient, and its merits depend on design and available alternatives (C1).

Question 1114 marks

11(a): Economy H gives up 120 / 60 = 2 thousand garments per additional thousand components (M1,A1). Economy R gives up 80 / 80 = 1 thousand garments per additional thousand components (M1,A1). R has the lower opportunity cost and therefore comparative advantage in components. Award the comparative-advantage identification within the final A1; do not award it for comparing absolute output alone. 11(b): If each economy specializes relatively more in the good with lower opportunity cost, combined output can rise (M1). Exchange allows each to obtain some of the other good and may permit consumption beyond its own production possibility frontier (A1). For components, mutually beneficial terms of trade must lie between the two opportunity costs: more than 1 and less than 2 thousand garments per thousand components (M1,A1). Reference to reciprocal specialization or gains from exchange (A1). 11(c): Consumers in H face a higher domestic price and generally lose consumer surplus; they may have fewer choices (M1,A1). Domestic component producers may expand output and gain producer surplus, and the government may receive tariff revenue if imports continue (M1,A1). However, consumers and downstream firms using components bear higher costs; protected output may be produced at higher opportunity cost, reducing gains from trade and creating a deadweight loss (M1,A1). Other valid points include retaliation, employment adjustment, infant-industry or strategic-industry arguments, and the possibility of revenue use for adjustment or training. Conclusion should weigh these effects: a broad or permanent tariff is difficult to justify solely on protection grounds; a temporary, targeted measure may be considered only where a clearly evidenced strategic or adjustment objective outweighs consumer and efficiency costs (C1).

Question 1214 marks

12(a): More consumers attract more restaurants and greater choice (M1); more restaurants in turn attract consumers, reinforcing the platform's user base (A1). Control of data, brand recognition, or high fixed costs can make it difficult for entrants to match the established platform's service or reach (M1,A1). These features can reduce competitive pressure and strengthen market power. 12(b): Short-run benefit: market power or scale economies may allow investment in technology, reliable delivery, or discounts that benefit consumers or restaurants (M1,A1). Possible longer-run concern: weaker competition can enable higher fees, lower service quality, reduced choice, or exclusion of rivals, harming consumers or restaurants (M1,A1). Accept another clearly explained, contrasting consequence. 12(c): Case for restriction: exclusive discounts may induce restaurants to avoid rival platforms; where a platform has substantial market power this can foreclose rivals, raise entry costs, and weaken competition (M1,A1). This can protect choice, innovation, and competitive pressure in the long run (A1). Case against: discounts can lower restaurant costs or consumer prices, reward volume, and reflect legitimate competition; banning them may reduce efficiency and consumer benefits (M1,A1). Evidence needed: platform market shares and durability, switching and multi-homing rates, discount terms and duration, rivals' ability to reach viable scale, actual price/quality effects, and whether the conduct prevents efficient entry (A1). Judgment: intervention is justified only if evidence indicates substantial foreclosure and likely consumer harm; a narrowly tailored restriction or monitoring may preserve pro-competitive discounts while addressing exclusion (C1).

Question 1320 marks

Candidates answer ONE alternative only; the assessed total for Question 13 is 20 marks. The two alternatives are not added together. 13 / Alternative 1 / (a): A monopolist faces the market demand curve and must lower price to sell additional units, so marginal revenue lies below price (M1,A1). Profit is maximised where marginal revenue equals marginal cost, provided the relevant conditions hold (M1). At that output, the demand price is above marginal revenue and hence above marginal cost in the standard case (A1). Restricting output relative to the competitive outcome can permit a higher price and create a welfare loss (A1). 13 / Alternative 1 / (b): If the cap is binding below the monopoly price, the firm charges the capped price (M1) and may expand output to the quantity demanded at that price, subject to capacity and cost conditions (A1). Profit normally falls relative to the uncapped monopoly outcome, though it need not disappear (A1). If set too low, the cap may reduce maintenance, investment, service quality, or even induce exit where revenue cannot cover relevant costs (A1). 13 / Alternative 1 / (c): Price discrimination means charging different prices to different buyers or for different units, not fully explained by cost differences, usually requiring market segmentation and limited resale (M1,A1). It can expand output for some consumers but may extract surplus; it harms competition/consumers if it excludes rivals or exploits groups with few alternatives (A1). Predatory pricing means pricing below an appropriate cost benchmark with the aim and likelihood of excluding rivals, followed potentially by recoupment after competition weakens (M1,A1). Low prices alone are not proof: the exclusion and likely longer-run harm must be evidenced (A1). 13 / Alternative 1 / (d): A cap can protect consumers quickly and constrain excessive prices where competition is weak (M1,A1). But the regulator needs reliable cost, demand and quality information; a poorly designed cap can distort investment, quality or entry (M1,A1). Competition enforcement can target exclusionary conduct and preserve price competition and innovation, but investigations may be slow and structural entry barriers can remain (M1,A1). A reasoned conclusion weighs the market's natural-monopoly features, evidence of consumer harm, regulator capability, and the ability to monitor quality; a carefully designed cap with periodic review and competition enforcement may be preferable to either instrument alone (C1). Credit a coherent alternative conclusion. 13 / Alternative 2 / (a): Factor endowment theory predicts that a country tends to export goods using its relatively abundant factor intensively and import goods using its relatively scarce factor intensively (M1,A1). If labour is relatively abundant and capital relatively scarce, labour-intensive products have a lower opportunity cost (M1,A1), supporting exports of those products and imports of capital-intensive products (A1). 13 / Alternative 2 / (b): Trade integration can widen markets, increase specialization and competition, and allow firms to exploit economies of scale (M1,A1). Foreign investment may bring capital, technology, management skills and access to international production networks, raising productivity (M1,A1). A limitation or risk, such as gains being concentrated, domestic firms being displaced, environmental damage, dependence on foreign firms, or technology spillovers failing to occur, earns (A1). 13 / Alternative 2 / (c): Economic growth is an increase in real output, commonly measured by real GDP or real GDP per capita over time (M1). Economic development is broader and concerns sustained improvement in material well-being, capabilities and quality of life (M1). GDP growth alone can conceal unequal distribution, poverty, environmental costs, health or education outcomes, and unpaid activity (A1,A1). 13 / Alternative 2 / (d): Education can improve skills and labour productivity, while transport infrastructure can lower business costs, connect workers to jobs and enable firms to access markets (M1,A1). These measures can support diversification, investment and more sustained gains (A1). However, access and quality may differ by income or region, so benefits can be uneven; education may take time to translate into suitable employment (M1,A1). Infrastructure and production can also create environmental or social costs, while trade shocks may harm particular workers and communities (A1). Judgment: investment can raise the potential for broadly shared development but cannot ensure it; complementary policies such as accessible training, social protection, competition, environmental safeguards and evaluation of distributional outcomes are needed (C1).