FREE HKDSE PRACTICE PAPER
HKDSE Economics Paper 2 Mock Paper (2028 Onwards)
This practice paper follows the HKEAA 2028-onwards Paper 2 question-answer book: Section A (44 marks) has 9 short questions with parts of 1 to 5 marks, Section B (56 marks) has 3 structured questions ending in a source-based question with an essay part, and Section C (20 marks) has one question on each elective part, of which candidates attempt ONE. Allow 2 hours 30 minutes. Model answers give the marking points, including the effective communication marks for the essay.
14 questions120 marks2 hr 30 min
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Paper structure
- Section A9 questions · 44 marks
- Section B3 questions · 56 marks
- Section C2 questions · 20 marks
Topics in this sample
- Basic economic concepts
- Efficiency, equity and the role of government
- Firms and production
- Market and price
- Measurement of economic performance
- Macroeconomic problems and policies
- Money and banking
- International trade and finance
- Competition and market structure
- National income determination and price level
- Elective 1: Monopoly pricing, anti-competitive behaviours and competition policy
- Elective 2: Extension of trade theory, economic growth and development
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Model answers
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Question 15 marks
1(a): A planned (command) economy (1), because the basic economic problems are solved by the government's commands instead of by the market (1).
1(b): Goods go to those who are willing and able to pay the market price (1). People's ability to pay depends on their income, which is determined by the prices of the factors of production they own (1). Hence goods are allocated to those with the higher willingness and ability to pay; those unwilling or unable to pay the price do not obtain the goods (1).
Question 24 marks
Public goods are goods which are non-rivalrous in consumption (1): one more person using the good does not reduce the amount available to others (1). One more user reading the forecast does not reduce the forecast available to other users, so the forecasts are public goods (1). Whether a good is provided by the government or at zero price does not determine whether it is a public good (1).
Question 36 marks
3(a): Yes (1). An entrepreneur bears business risks and makes business decisions; Mr Chan uses his own savings, makes the decisions on running the café and bears the risk of losses (1).
3(b): Any TWO, 1 mark each: unlimited liability; limited capital; lack of continuity; the owner bears all the risks and workload alone.
3(c): Yes (1). The production process is divided into different tasks, with each worker specialising in one task (making coffee, cleaning) (1).
Question 46 marks
4(a): Percentage change in quantity demanded = (8 000 − 10 000)/10 000 = −20%; percentage change in price = (660 − 600)/600 = +10% (1). Price elasticity of demand = 20%/10% = 2 (1). The demand is elastic (1).
4(b): Total revenue before = 6 000 000; after = 5 280 000 (1). Total revenue decreased (1), because demand is elastic: the percentage fall in quantity demanded is greater than the percentage rise in price (1).
Question 54 marks
5(a): Not included (1). GDP measures the value of output produced within Hong Kong; the salary is earned from production in Shenzhen (it is included in Hong Kong's GNI instead) (1).
5(b): The value of the flat is not included because it was not produced in the current period (1). However, the commission of the estate agent for arranging the sale is included as it is a service produced in the current period (1).
Question 65 marks
Both the demand curve and the supply curve shift to the right (1). The equilibrium quantity must increase (1). The change in equilibrium price depends on the relative magnitude of the shifts (1): if the increase in supply is greater than or equal to the increase in demand, the price falls or remains unchanged, so the price may not rise (1). Correct diagram showing a larger rightward shift of supply with P₁ ≤ P₀ (1).
Question 75 marks
7(a): Number unemployed = 4.0 million − 3.88 million = 0.12 million (1). Unemployment rate = 0.12/4.0 × 100% = 3% (1).
7(b): The number of unemployed and the labour force both fall by the same number (1). Since the number of unemployed is much smaller than the labour force, it falls by a larger percentage (1). The unemployment rate therefore falls (1).
Question 85 marks
Higher US interest rates make US dollar assets more attractive, so funds flow out of Hong Kong dollar assets (1). Banks sell Hong Kong dollars to the HKMA for US dollars at the weak-side Convertibility Undertaking of HK$7.85 per US dollar (1). The monetary base (aggregate balance) of Hong Kong contracts (1), so Hong Kong dollar interbank interest rates rise (1). Interest rate arbitrage continues until Hong Kong interest rates move in line with US interest rates (1).
Question 94 marks
9(a)(i): Balance of trade = (500 + 180) − (620 + 90) = −$30 billion (a deficit) (1).
9(a)(ii): Current account balance = −30 + 30 − 10 = −$10 billion (1).
9(b): No (1). The current account deficit may be offset by surpluses in the capital account and the financial account, e.g. net inflows of direct or portfolio investment (1).
Question 1016 marks
10(a): The supply of taxi licences is fixed, so the supply curve is vertical (perfectly inelastic) (1). A growing demand for taxi services raises the expected earnings from operating a taxi, so the demand for licences (a derived demand) increases (1). The market price of a licence rises (1). Correct diagram with vertical S, D₀ shifting to D₁ and P₀ rising to P₁ (1).
10(b): Any TWO, 2 marks each: a shortage, with passengers queuing or waiting a long time for taxis; drivers selecting passengers (refusal of hire) or asking for extra payments; passengers switching to unlicensed or alternative transport.
10(c): The rationing function (1): the higher fares allocate rides to passengers who are willing to pay the most (1). Also accept the incentive function: higher fares induce more drivers to provide rides during rush hours.
10(d): Ride-hailing services are substitutes for taxi services, so the demand for taxi services falls (1). The expected earnings of taxis fall, reducing the demand for taxi licences (1). With a fixed supply of licences, the market price of a licence falls (1). Diagram showing the demand for licences shifting to the left (1).
10(e): The owner receives a fixed income regardless of the fares collected, avoiding the risk of fluctuating income (1), and does not need to spend resources monitoring how hard the driver works (1).
Question 1114 marks
11(a): Exports are a component of aggregate demand, so AD decreases and the AD curve shifts to the left (1). At the original price level there is excess supply (1). The general price level falls (1) and real output falls (1). Correct diagram (1).
11(b): Lower output reduces firms' demand for labour, a derived demand (1). Fewer workers are employed and more people are unemployed (1), so the unemployment rate rises (1).
11(c): Banks have more excess reserves and can lend more (1). Through deposit creation, money supply increases (1) and interest rates fall (1). Consumption and investment expenditure rise, increasing AD and narrowing the gap (1).
11(d): Any ONE explained (2): banks may be unwilling to lend and firms/households unwilling to borrow when they are pessimistic during a recession; under a fixed exchange rate, lower domestic interest rates cause capital outflows, which reduce the monetary base and limit the fall in interest rates.
Question 1226 marks
12(a)(i): (90 − 120)/120 × 100% = −25% (1); the index fell by 25% (1).
12(a)(ii): Any ONE explained (2): an economic downturn or rising unemployment reduces income and the demand for flats; emigration reduces the population and the demand for housing; a rise in the supply of new flats completed; expectations of further price falls reduce speculative and investment demand.
12(b): At a rent below the equilibrium rent, the quantity demanded of public rental housing is greater than the quantity supplied (1). The shortage is rationed by queuing, so applicants wait a long time (1). Diagram showing the rent below equilibrium and the shortage Qd − Qs (1).
12(c)(i): Most buyers borrow to buy flats; higher mortgage interest rates raise the cost of borrowing and the monthly repayments (1), so fewer buyers are willing and able to buy (1).
12(c)(ii): The demand for private flats decreases and the demand curve shifts to the left (1). The price of private flats falls (1) and the quantity transacted falls (1), as shown in a correctly labelled diagram.
12(d): Effective communication (EC, max. 2): 2 = arguments supported by the sources and appropriate economic theories, relevant material, well-organised without repetition, clear and fluent language; 1 = some support from the sources/theories, some irrelevant material or repetition; 0 = no support from the sources or theories, material unrelated to the question.
Content (max. 12). Answers may include:
Strategy 1, how it works (max. 4): more land for housing increases the supply of private flats in the future, shifting the supply curve to the right and lowering flat prices; expectations of more future supply may also reduce speculative demand now.
Strategy 1, limits (max. 2): long time lag before land is ready (Source D); supply of flats is price-inelastic in the short run; construction costs and interest rates (Source C) also affect prices.
Strategy 2, how it works (max. 2): subsidies raise buyers' ability to pay, so some first-time buyers can afford a flat.
Strategy 2, limits (max. 4): the subsidy increases the demand for flats; with an inelastic supply, much of the subsidy is captured by higher flat prices, so affordability for buyers may not improve and may worsen for others; it is financed by taxpayers and may raise equity concerns.
Credit a reasoned comparison: Strategy 1 tackles the supply side and is more effective in the long run, while Strategy 2 may raise prices unless supply is elastic.
Question 1320 marks
13(a): A patent gives the company the legal right to be the only producer of the drug for a period (1). This is a legal barrier to entry, so other firms cannot produce the same drug and the company faces no close competition (1).
13(b): The company produces the output at which MR = MC, i.e. Qm (1), because profit rises as long as MR > MC and falls when MR < MC (1). The price is the highest price consumers are willing to pay for Qm, read from the demand curve, i.e. Pm (1). Pm and Qm correctly indicated (1).
13(c): Consumer surplus: the area below D and above Pm up to Qm (1). Deadweight loss: the area between D and MC from Qm to the output where D = MC (1). Both correctly shaded and labelled (1).
13(d)(i): The same drug, with the same cost of production, is sold at different prices to different groups of buyers (1); the price differences are not due to differences in cost (1).
13(d)(ii): Any TWO, 2 marks each: the company has market power (it is a price searcher); the markets can be separated so that resale from the low-price market to the high-price market is prevented or costly; the price elasticities of demand differ between the markets.
13(e): Price fixing (a cartel agreement) (1). Harm, any TWO (2): consumers pay higher prices; less choice or lower quality; output is reduced, causing inefficiency. The First Conduct Rule (1), which prohibits agreements and concerted practices that have the object or effect of preventing, restricting or distorting competition in Hong Kong (1).
Question 1420 marks
14(a): Country H: 4/2 = 2 units of rice per unit of phones (1). Country L: 5/1 = 5 units of rice per unit of phones (1).
14(b): Country H has the lower opportunity cost of producing phones (1), so it has a comparative advantage in phones and should export phones (1).
14(c): 1 unit of phones exchanges for more than 2 units of rice (1) and less than 5 units of rice (1).
14(d): PPFL: a straight line from 100 units of rice to 20 units of phones (1)(1). Country L specialises in rice; CPFL: a straight line from 100 units of rice to 25 units of phones (1)(1).
14(e)(i): Economic growth is a sustained increase in real output (real GDP) (1). Economic development is an improvement in the general well-being of people, covering living standards, health, education and freedom (1).
14(e)(ii): Any TWO, 1 mark each: life expectancy at birth; adult literacy rate or years of schooling; infant mortality rate; HDI; access to clean water or doctors per thousand people.
14(f): Education builds human capital, raising workers' skills (1). Labour productivity rises (1), increasing the productive capacity (potential output) of the economy, so real GDP grows (1).
14(g): Any ONE way explained (3): pollution and environmental damage harm health and quality of life; long working hours reduce leisure; growth may widen income inequality, so many people's well-being does not improve.