FREE HKDSE PRACTICE PAPER

HKDSE Economics Paper 1 Mock Paper

This one-hour sample follows the HKEAA Paper 1 pattern: 45 multiple-choice questions in the order of the compulsory syllabus, from basic economic concepts and firms to markets, efficiency and equity, national income, macroeconomic problems, money and banking, and international trade. About a third use the '(1), (2), (3)' statement format, and several are built on tables of data, as in the real paper. Each model answer explains the correct option and the distractors.

45 questions45 marks1 hr

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An original practice paper written by Studify in the HKEAA format. This is an independent sample, not an official HKEAA paper.

Paper structure

Section A45 questions · 45 marks

Topics in this sample

Basic economic concepts
Market and price
Firms and production
Efficiency, equity and the role of government
Competition and market structure
Measurement of economic performance
National income determination and price level
Macroeconomic problems and policies
Money and banking
International trade and finance

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DSEECONPAPER 1

STUDIFY MOCK EXAMINATION

HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION · PRACTICE PAPER

ECONOMICS PAPER 1

8.30 am – 9.30 am (1 hour)

INSTRUCTIONS

(1)Read carefully the instructions on the Answer Sheet. After the announcement of the start of the examination, you should first stick a barcode label and insert the information required in the spaces provided. No extra time will be given for sticking on the barcode label after the 'Time is up' announcement.
(2)When told to open this book, you should check that all the questions are there. Look for the words 'END OF PAPER' after the last question.
(3)All questions carry equal marks.
(4)ANSWER ALL QUESTIONS. You are advised to use an HB pencil to mark all the answers on the Answer Sheet, so that wrong marks can be completely erased with a clean rubber. You must mark the answers clearly; otherwise you will lose marks if the answers cannot be captured.
(5)You should mark only ONE answer for each question. If you mark more than one answer, you will receive NO MARKS for that question.
(6)No marks will be deducted for wrong answers.

Not to be taken away before the end of the examination session

Studify practice paper. Not an official HKEAA examination paper.

There are 45 questions in this paper. Choose the BEST answer for each question.

Ken, a Secondary 6 student, spends 3 hours queuing for a free concert ticket. Alternatively, he could work in a fast-food restaurant for $60 per hour or give private tuition for $150 per hour during those 3 hours. What is Ken's opportunity cost of queuing for the ticket?

$180

$270

$450

$630

Which of the following statements about free goods is/are correct? (1) The opportunity cost of producing a free good is zero. (2) A good given out free of charge must be a free good. (3) A good may be a free good in one place but an economic good in another.

(1) only

(3) only

(1) and (3) only

(1), (2) and (3)

Which of the following is a positive statement / are positive statements? (1) Raising the statutory minimum wage will raise the unemployment rate of low-skilled workers. (2) The government should provide more public rental housing units. (3) Hong Kong had the lowest unemployment rate in Asia in 2024.

(1) only

(2) only

(1) and (3) only

(2) and (3) only

A popular restaurant does not take reservations and serves customers on a first-come-first-served basis. Which of the following statements is correct?

The restaurant uses price competition to allocate its tables.

The restaurant's private property rights over its tables are weakened.

The problem of 'how to produce' is solved by the queue.

Customers who value their time more face a higher full cost of a meal.

Free-to-air television programmes are _____ because _____.

public goods ...... they are non-rivalrous in consumption

public goods ...... they are free of charge to viewers

private goods ...... their marginal cost of production is positive

free goods ...... viewers pay nothing to watch them

Which of the following would raise the average labour productivity of a firm? (1) The firm provides training courses to its workers. (2) The firm hires more workers while its machines remain unchanged, and diminishing marginal returns have set in. (3) The firm replaces its old machines with more advanced ones.

(1) only

(2) only

(1) and (2) only

(1) and (3) only

The geographical mobility of labour in Hong Kong would increase if

more job retraining courses were provided free of charge.

more jobs required specialised skills.

the wage differences between districts narrowed.

new railway lines lowered the commuting cost between remote districts and the urban areas.

Which of the following belongs to tertiary production?

a fish farm in Sai Kung

a garment factory in Kwun Tong

a bank providing mortgage loans

a contractor constructing public housing estates

The table below shows the total output of a bakery with a fixed number of ovens. When does diminishing marginal returns set in?

Number of workers	Total output (loaves)
1	10
2	24
3	36
4	44
5	48

when the 2nd worker is employed

when the 3rd worker is employed

when the 4th worker is employed

when the 5th worker is employed

10.

The following table shows the costs of a price-taking firm. Its fixed cost is $20. The market price of the good is $25. The profit-maximising output of the firm is _____ and its profit is _____.

Output (units)	Total cost ($)
4	80
5	98
6	120
7	146
8	178

5 units ...... $27

6 units ...... $30

6 units ...... $50

7 units ...... $29

11.

A bakery chain acquires a flour mill. This is an example of _____ and a possible motive is _____.

backward vertical integration ...... to secure a stable supply of raw materials

forward vertical integration ...... to secure sales outlets

horizontal integration ...... to reduce competition

lateral integration ...... to diversify risks

12.

Which of the following is an example of internal economies of scale?

A supermarket chain receives bulk-purchase discounts as it buys more from its suppliers.

A new railway line lowers the transport costs of all firms in a district.

A fall in office rents lowers the costs of all firms in Central.

The government lowers the profits tax rate.

13.

Which of the following features is/are common to perfect competition and monopolistic competition? (1) Firms are price takers. (2) There is free entry into and exit from the market. (3) There are many sellers in the market.

(1) only

(2) only

(1) and (3) only

(2) and (3) only

14.

Which of the following would shift the demand curve for Hong Kong-made mooncakes to the right?

a fall in the price of Hong Kong-made mooncakes

a rise in the price of flour

a rise in the price of imported mooncakes

a fall in the price of imported mooncakes

15.

The wages of food delivery workers rise. At the same time, more households order meals online. In the market for food delivery services, the equilibrium price will _____ and the equilibrium quantity will _____.

rise ...... increase

rise ...... increase, decrease or remain unchanged

fall ...... decrease

increase, decrease or remain unchanged ...... increase

16.

Petrol and private cars are in joint demand. Due to a decrease in the supply of petrol, the price of petrol rises. Which of the following will occur? (1) The demand for private cars decreases. (2) The price of private cars falls. (3) The quantity transacted of petrol decreases.

(1) only

(1) and (2) only

(2) and (3) only

(1), (2) and (3)

17.

The demand for a good is price-inelastic. If its price rises by 10%,

the quantity demanded will fall by more than 10%.

consumers' total expenditure on the good will increase.

consumers' total expenditure on the good will decrease.

consumers' total expenditure on the good will remain unchanged.

18.

Which of the following would make the demand for a brand of bottled water more price-elastic?

The brand advertises that its water is unique.

Consumers spend only a small proportion of their income on bottled water.

Bottled water becomes a necessity for more households.

More brands of bottled water enter the market.

19.

The table below shows the market demand and supply schedules of Good X. The demand and supply curves are straight lines. If the government imposes a per-unit tax of $3 on the sellers of Good X, which of the following is correct?

Unit price ($)	Quantity demanded (units)	Quantity supplied (units)
8	90	60
9	85	70
10	80	80
11	75	90
12	70	100

The new equilibrium price will be $13.

The quantity transacted will fall to 75 units.

The tax revenue of the government will be $210.

The tax burden borne by sellers will be $2 per unit.

20.

The government sets an effective price ceiling on a good. Which of the following will result? (1) a shortage of the good (2) non-price competition among buyers (3) an increase in the quantity transacted of the good

(1) only

(1) and (2) only

(2) and (3) only

(1), (2) and (3)

21.

The government imposes an effective production quota on Good Y. Compared with the free-market equilibrium, which of the following is/are correct? (1) The price of Good Y rises. (2) The consumer surplus of Good Y decreases. (3) There is a deadweight loss in the market of Good Y.

(1) only

(1) and (2) only

(2) and (3) only

(1), (2) and (3)

22.

Which of the following statements about a statutory minimum wage is correct?

It raises the wages of all workers in the economy.

It increases the quantity of labour demanded in the affected labour market.

It has no effect on a labour market if it is set below the equilibrium wage rate of that market.

It leads to a shortage of labour in the affected labour market.

23.

The table below shows the maximum amount Ann is willing to pay for each concert ticket. The price of each ticket is $40. Ann's consumer surplus is

Ticket	Maximum willingness to pay ($)
1st	80
2nd	60
3rd	35

$20.

$55.

$60.

$95.

24.

A factory discharges waste water into a river, which reduces the catch of fishermen nearby. Without government intervention,

the output of the factory is higher than the efficient level.

the marginal social benefit is higher than the marginal social cost at the market output.

granting a per-unit subsidy to the factory restores efficiency.

there is no deadweight loss because the fishermen can fish elsewhere.

25.

In a market without externalities, a per-unit tax on a good will

raise the total social surplus.

create a deadweight loss.

raise the producer surplus.

raise consumers' total expenditure on the good.

26.

Which of the following would most likely lower the Gini coefficient based on post-tax post-social transfer household income in Hong Kong?

lowering the marginal tax rate of the highest tax band of salaries tax

replacing the progressive salaries tax with a flat-rate tax

cutting the provision of public rental housing

increasing the Old Age Living Allowance for low-income elderly

27.

Which of the following is included in the calculation of Hong Kong's gross domestic product (GDP)?

a household's purchase of a 20-year-old flat

the pension received by a retired civil servant

the value of housework done by a homemaker

the commission earned by a Hong Kong estate agent for arranging the sale of a second-hand flat

28.

Refer to the following production chain of bread in Hong Kong. The bakery imports butter worth $50 and buys flour from a local mill. The contribution of the above production chain to Hong Kong's GDP is

Producer	Sells to	Value of sales ($)
Local farm	Local flour mill	100
Local flour mill	Local bakery	250
Local bakery	Local consumers	500

$400.

$450.

$500.

$850.

29.

The table below shows some data of an economy in a certain year. Which of the following statements about the economy are correct? (1) Its gross national income (GNI) is higher than its GDP. (2) Its GDP at factor cost is $2 670 billion. (3) Its net external factor income flow is negative.

Item	$ billion
GDP at market prices	2 800
Factor income from abroad	1 100
Factor income paid abroad	900
Indirect taxes	150
Production subsidies	20

(1) and (2) only

(1) and (3) only

(2) and (3) only

(1), (2) and (3)

30.

In a certain year, the nominal GDP of an economy rose by 5% and its GDP deflator rose by 3%. Its real GDP rose by about

2%.

3%.

5%.

8%.

31.

Peter quits his job at a bank to look for a job with a higher salary and is now searching for a job. Peter is _____ and this is an example of _____ unemployment.

unemployed ...... frictional

unemployed ...... structural

not in the labour force ...... frictional

underemployed ...... cyclical

32.

Mrs Ho deposits money in a one-year time deposit at a nominal interest rate of 3%. She expects the inflation rate to be 2%, but the actual inflation rate turns out to be 4%. Which of the following is correct?

The actual real interest rate is 1% and Mrs Ho gains from the unanticipated inflation.

The actual real interest rate is −1% and Mrs Ho loses from the unanticipated inflation.

The actual real interest rate is 7% and the bank loses from the unanticipated inflation.

The expected real interest rate is 5% and the bank gains from the unanticipated inflation.

33.

Which of the following would shift the aggregate demand curve of Hong Kong to the right?

a fall in the general price level

a rise in the salaries tax rate

an increase in the spending of inbound tourists

a rise in the interest rates of Hong Kong

34.

A sharp rise in the price of imported oil will lead to a _____ general price level and a _____ real output in the short run.

higher ...... lower

higher ...... higher

lower ...... lower

lower ...... higher

35.

Which of the following would shift the long run aggregate supply (LRAS) curve of an economy to the right?

a rise in wage rates

an increase in the money supply

the distribution of consumption vouchers

admitting more working-age immigrants

36.

Prices of goods are displayed in dollars on the shelves of a supermarket. Here money serves as a

medium of exchange.

unit of account.

store of value.

standard of deferred payment.

37.

Ms Chan withdraws HK$100 000 from her Hong Kong dollar savings deposits with a licensed bank. She puts HK$40 000 into her current account and holds the rest as cash. What will be the immediate effects on the Hong Kong dollar money supply? (1) M1 increases by HK$100 000. (2) M2 remains unchanged. (3) M3 decreases by HK$100 000.

(1) only

(1) and (2) only

(2) and (3) only

(1), (2) and (3)

38.

Refer to the following balance sheet of a banking system. The required reserve ratio is 10%. If the banks lend out all their excess reserves and there is no cash leakage, the maximum possible increase in deposits is

Assets ($ million)		Liabilities ($ million)
Reserves	300	Deposits	2 000
Loans	1 700

$100 million.

$900 million.

$1 000 million.

$3 000 million.

39.

Under the Linked Exchange Rate System, there is a large capital inflow into Hong Kong and the Hong Kong Monetary Authority sells Hong Kong dollars to banks at HK

7.75 = US

1. Which of the following are likely results? (1) The monetary base of Hong Kong increases. (2) Hong Kong interbank interest rates tend to fall. (3) The Hong Kong dollar appreciates beyond HK

7.75 = US

(1) and (2) only

(1) and (3) only

(2) and (3) only

(1), (2) and (3)

40.

Which of the following are direct taxes in Hong Kong? (1) salaries tax (2) profits tax (3) stamp duty on property transactions

(1) and (2) only

(1) and (3) only

(2) and (3) only

(1), (2) and (3)

41.

Which of the following is an example of expansionary fiscal policy?

raising the basic allowance of salaries tax

the Hong Kong Monetary Authority lowering the Base Rate

raising government rates on properties

cutting the expenditure on public works

42.

The table below shows the amount of rice or cloth that Country A and Country B can each produce with one unit of resources. Which of the following statements are correct? (1) Country A has an absolute advantage in producing both goods. (2) Country B should export rice. (3) The terms of trade 1 unit of cloth = 5 units of rice benefits both countries.

	Rice (units)		Cloth (units)
Country A	60	or	30
Country B	40	or	10

(1) only

(1) and (2) only

(2) and (3) only

(1), (2) and (3)

43.

A small open economy imposes a per-unit tariff on imported Good X. As a result,

the domestic price of Good X falls.

the domestic production of Good X increases.

the quantity of Good X imported increases.

the consumer surplus of Good X increases.

44.

Which of the following is included in the calculation of the balance of Hong Kong's current account?

A Hong Kong resident buys shares of a Japanese company.

A US firm builds a factory in Hong Kong.

A Korean tourist pays for a hotel room in Hong Kong.

The Hong Kong Monetary Authority buys US Treasury bills.

45.

Suppose the Japanese yen depreciates against the Hong Kong dollar. Which of the following is correct?

Hong Kong residents travelling to Japan will face higher costs.

Hong Kong exports to Japan will become cheaper in yen.

Japanese goods will become cheaper for Hong Kong consumers.

Japanese tourists will find spending in Hong Kong cheaper.

END OF PAPER

Model answers

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

Question 11 mark

Correct option: C

1: C. Opportunity cost is the highest-valued option forgone. Ken can take only one of the alternatives, so it is the $450 from private tuition (3 × $150). A is the lower-valued alternative; B is the difference between the two jobs; D adds both alternatives. The ticket being free does not make the cost zero, because queuing takes time.

Question 21 mark

Correct option: C

2: C. (1) is correct: a free good involves no sacrifice of alternatives. (2) is wrong: a free gift such as a lunch box uses scarce resources, so it is an economic good. (3) is correct: whether a good is free depends on whether the quantity available is more than enough to satisfy all wants at zero price, which varies by place.

Question 31 mark

Correct option: C

3: C. A positive statement can be refuted by facts, whether or not it is true. (1) and (3) can be checked against data. (2) contains the value judgement 'should', so it is normative.

Question 41 mark

Correct option: D

4: D. Full cost = money price + time cost. Queuing is non-price competition, so customers with a higher value of time bear a higher full cost. A is wrong: the price is not used to ration tables. B is wrong: the owner still decides how the tables are used. C is wrong: the queue decides 'for whom to produce'.

Question 51 mark

Correct option: A

5: A. One more viewer watching a programme does not reduce the amount available to others, so the programmes are non-rivalrous in consumption, i.e. public goods. Being free of charge does not make a good public or free; the programmes are economic goods produced with scarce resources.

Question 61 mark

Correct option: D

6: D. Training raises the quality of labour and better machines raise output per worker. In (2), once marginal product falls below average product, hiring more workers lowers the average product of labour.

Question 71 mark

Correct option: D

7: D. Geographical mobility is the ease with which workers move between places of work. Lower commuting costs make it easier to take jobs in other districts. A affects occupational mobility; B lowers occupational mobility; C reduces the incentive to move.

Question 81 mark

Correct option: C

8: C. Tertiary production provides services. A is primary production; B and D are secondary production (manufacturing and construction).

Question 91 mark

Correct option: B

9: B. Marginal products are 10, 14, 12, 8 and 4 loaves. The marginal product first falls when the 3rd worker is employed (from 14 to 12).

Question 101 mark

Correct option: B

10: B. The marginal costs of the 5th, 6th, 7th and 8th units are

18,

22, $26 and $32. The firm produces as long as MC ≤ price, i.e. 6 units. Profit = 6 ×

25 −

120 = $30. C ignores the fixed cost.

Question 111 mark

Correct option: A

11: A. The flour mill is at an earlier stage of the same production chain, so the merger is backward vertical integration. It secures the supply of flour.

Question 121 mark

Correct option: A

12: A. Internal economies of scale arise from the expansion of the firm itself, such as bulk purchasing. B and C are external to the firm; D is not related to the scale of production.

Question 131 mark

Correct option: D

13: D. Both have many sellers and free entry and exit. Firms in monopolistic competition sell differentiated products and are price searchers, so (1) is not common to both.

Question 141 mark

Correct option: C

14: C. Imported mooncakes are substitutes, so a rise in their price increases the demand for Hong Kong-made mooncakes. A causes a movement along the demand curve; B affects supply; D decreases demand.

Question 151 mark

Correct option: B

15: B. Higher wages raise costs and decrease supply; more online orders increase demand. Both changes raise the price, but they have opposite effects on quantity, so the change in quantity is uncertain.

Question 161 mark

Correct option: D

16: D. A fall in the supply of petrol raises its price and lowers its quantity transacted (3). Since cars and petrol are in joint demand, the demand for cars falls (1), lowering their price (2).

Question 171 mark

Correct option: B

17: B. With inelastic demand, the percentage fall in quantity demanded is smaller than the 10% rise in price, so total expenditure increases.

Question 181 mark

Correct option: D

18: D. More close substitutes make consumers more responsive to a price change. A, B and C all make demand less elastic.

Question 191 mark

Correct option: C

19: C. Qd = 130 − 5P and Qs = 10P − 20. After the tax, Qs = 10(P − 3) − 20. Equilibrium: P = $12 and Q = 70. Tax revenue = $3 × 70 =

210. Buyers pay

2 more per unit and sellers receive $1 less, so sellers bear $1 per unit.

Question 201 mark

Correct option: B

20: B. An effective price ceiling is set below the equilibrium price, so quantity demanded exceeds quantity supplied (1) and buyers compete by other means such as queuing (2). The quantity transacted falls to the quantity supplied, so (3) is wrong.

Question 211 mark

Correct option: D

21: D. An effective quota restricts quantity below the equilibrium level, so price rises (1) and consumer surplus falls (2). At the quota, marginal benefit exceeds marginal cost, so there is a deadweight loss (3).

Question 221 mark

Correct option: C

22: C. A minimum wage below the equilibrium wage is not effective. If effective, it lowers the quantity of labour demanded and causes a surplus of labour, not a shortage. It does not affect workers already paid above it.

Question 231 mark

Correct option: C

23: C. Ann buys a ticket as long as her marginal benefit is at least

40, i.e. 2 tickets. Consumer surplus = (

80 −

40) + (

60 −

40) =

60. B wrongly includes the 3rd ticket, whose marginal benefit is below the price.

Question 241 mark

Correct option: A

24: A. The pollution is a negative externality, so marginal social cost exceeds marginal private cost. The factory produces where MPC = MB, which is beyond the efficient output where MSC = MSB, so there is over-production and a deadweight loss.

Question 251 mark

Correct option: B

25: B. The tax lowers the quantity transacted below the efficient level, where marginal benefit equals marginal cost, so it creates a deadweight loss. Producer surplus falls; the change in total expenditure depends on the elasticity of demand.

Question 261 mark

Correct option: D

26: D. Larger transfers to low-income households narrow the income gap and lower the Gini coefficient. A and B make the tax system less progressive and C reduces in-kind benefits to the poor; all widen the gap.

Question 271 mark

Correct option: D

27: D. The agent's commission is payment for a service produced in the current period. A is a transaction of a good produced in the past; B is a transfer payment; C is non-market production, which is excluded.

Question 281 mark

Correct option: B

28: B. By the value-added approach, the total value added is the value of the final product minus imported inputs:

500 −

50 =

450. Equivalently:

100 + (

250 −

100) + (

500 −

250 −

50) =

450. D double counts intermediate goods.

Question 291 mark

Correct option: A

29: A. GNI = GDP + factor income from abroad − factor income paid abroad =

2 800bn +

200bn, so (1) is correct and the net flow is positive, so (3) is wrong. GDP at factor cost =

2 800bn −

150bn +

20bn =

2 670bn (2).

Question 301 mark

Correct option: A

30: A. Growth rate of real GDP ≈ growth rate of nominal GDP − growth rate of the GDP deflator = 5% − 3% = 2%.

Question 311 mark

Correct option: A

31: A. Peter is available for and seeking work, so he is unemployed. Unemployment that arises while workers search for or move between jobs is frictional unemployment.

Question 321 mark

Correct option: B

32: B. By Fisher's equation, the actual real interest rate = 3% − 4% = −1%, below the expected 1%. As a lender, Mrs Ho loses and the bank, as the borrower, gains from the unanticipated inflation.

Question 331 mark

Correct option: C

33: C. Spending by inbound tourists is an export of services, a component of aggregate demand. A causes a movement along the AD curve; B and D shift AD to the left.

Question 341 mark

Correct option: A

34: A. Higher input prices raise the costs of production and shift the SRAS curve to the left, so the price level rises and real output falls.

Question 351 mark

Correct option: D

35: D. More working-age immigrants increase the labour force and the full-employment output. A shifts the SRAS curve; B and C shift the AD curve.

Question 361 mark

Correct option: B

36: B. Using money to express and compare the values of goods is its function as a unit of account.

Question 371 mark

Correct option: B

37: B. Savings deposits are in M2 and M3 but not in M1. Both cash held by the public and demand deposits are in M1, so M1 rises by HK$100 000 (1). M2 and M3 include all three items, so they remain unchanged (2), and (3) is wrong.

Question 381 mark

Correct option: C

38: C. Required reserves = 10% ×

2 000m =

200m, so excess reserves are

100m. Maximum increase in deposits =

100m × 1/10% = $1 000m. D is the maximum total deposits.

Question 391 mark

Correct option: A

39: A. Selling Hong Kong dollars for US dollars increases the Aggregate Balance, part of the monetary base (1). More liquidity tends to push down interbank rates (2). The strong-side Convertibility Undertaking keeps the rate from going beyond 7.75, so (3) is wrong.

Question 401 mark

Correct option: A

40: A. A direct tax is one whose burden cannot be shifted to others, such as salaries tax and profits tax. Stamp duty is levied on transactions and is an indirect tax.

Question 411 mark

Correct option: A

41: A. A higher allowance lowers salaries tax payments and raises disposable income, increasing aggregate demand. B is a monetary change; C and D are contractionary fiscal policies.

Question 421 mark

Correct option: B

42: B. Country A produces more of both goods per unit of resources (1). The opportunity cost of 1 cloth is 2 rice in A and 4 rice in B, so B has a comparative advantage in rice and exports it (2). Mutually beneficial terms of trade must lie between 2 and 4 rice per cloth, so (3) is wrong.

Question 431 mark

Correct option: B

43: B. The tariff raises the domestic price of Good X, so domestic producers supply more, consumers buy less and imports fall. Consumer surplus decreases.

Question 441 mark

Correct option: C

44: C. The tourist's hotel spending is an export of services, recorded in the current account. A and B are financial account transactions; D changes the official reserve assets, which are also recorded in the financial account.

Question 451 mark

Correct option: C

45: C. Each Hong Kong dollar buys more yen, so goods priced in yen are cheaper in Hong Kong dollars. Hong Kong goods become dearer in yen, so B and D are wrong; A is the opposite of the effect.