Contents Page No. Techniques to Candidates 5

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2 Contents Page No. Techniques to Candidates 5 Section A - Basic Economic Concepts 9 Ch1 - Basic Economic Concepts 11 Concept Map 1 (please refer to Section X) Section B - Firms and Production 19 Ch2 - Ownership of Firms 21 Ch3 - Production and Division of Labour 25 Ch4 - Factors of Production 28 Ch5 - Production and Costs in Short Run and Long Run 34 Ch6 - Expansion and Integration of Firms 39 Ch7 - The Objective of Firms 40 Concept Map 2 (please refer to Section X) Section C - Market and Price 45 Ch8 - Demand and Supply 47 Ch9 - Consumer Surplus and Producer Surplus and Functions of Price 56 Ch10 - Price Elasticities of Demand and Supply 61 Ch11 - Market Intervention 65 Concept Maps 3 & 4 (please refer to Section X) Section D - Competition and Market Structure 73 Ch12 - Competition and Market Structure 75 Concept Map 5 (please refer to Section X) Section E - Efficiency, Equity and the Role of Government 83 Ch13 - Efficiency 85 Ch14 - Equity 92 Ch15 - Policy Concerns 95 Concept Maps 6 & 7 (please refer to Section X) Section X - Concept Maps 101

3 Techniques to Candidates 1. HKDSE Exam Paper Format The HKDSE Economics Examination, starting from 2012, consists of two written papers. Sections Question types Weighting Duration Details Suggested time allocation Paper 1 MCQ 30% 1 hour 40 MCQ; Compulsory Spend an average of 1 min to 1.5 min on each question Use the last 10 min for final check Paper 2 A B C Short Questions Short Questions/ Essay-type Questions Short Questions/ Essay-type Questions 30% 2 hours Around 8 short questions; Compulsory 31% Around 3 questions; Compulsory 9% Spend at most 45 min Spend around 50 min Around 1 Spend around question for the 20 min; chosen elective; Use the last 5 min for 1 out of 2 final check The weighting of Microeconomics and Macroeconomics is about the same for both paper 1 and paper 2 2. Points to Note A. To tackle the MCQs in Paper I, you should be familiar with: (i) the definitions (especially the keywords); (ii) the ideas of advantages, disadvantages, limitations, characteristics (pay more attention to the ideas rather than the exact wording). B. To tackle the short questions and essay questions in Paper II, you should: (i) recite the exact wording of the definitions; (ii) be familiar with the keywords and the logic flow used in each type of elaboration; (iii) remember some common examples that can be used so that the markers can understand your elaborations easily; (iv) for essay questions especially, remember to relate the elaboration with the case given (i.e. to be specific); also mind the coherence of the example used with the case given, and not make it unrelated. C. For paper II, it is wrong to think that the more you write the more you score. It is important that what you write are at least logically consistent as inconsistent content or contradiction may result in no marks. 5

4 3. The way to use this book to improve your exam performance After learning each chapter in school, use this book to do the revision thoroughly. The following are some tips for using the book: Attributes Descriptions What to do with them The words bolded in red. These are some keywords that deserve some marks in the exam. Definition Exam Technique When doing your revision, pay special attention to them. Before the exam, just focus on them and skim through the rest. These are the definitions of some Pay attention to the keywords; key concepts that you have to Recite them before tests or exams. remember by heart (pay special attention to the exact wording). They remind you of special exam skills to tackle specific questions. Grasp the ideas of the techniques and apply them when you encounter related questions in exam. Know more Illustration Learn More! SP (4) CE: 09(1), 08(9b), 07(10c), 06(2), They serve as an extension to a Able students aiming high should pay topic which gives an in-depth attention to them during their discussion to some difficult or not revision. frequently asked concepts. They are some commonly asked question types in exams. Pay attention to the methods of solving typical problems or the ways of presentation. They are some information Just read them if you are interested unrelated to exam but they just in. Skip them if you don t have time. give you more ideas about a topic. Some special points that you Remember their ideas by heart before should pay attention to. the exam. Reference to pastpaper When doing your revision, refer to the conventional (long) questions SP= HKDSE Sample paper CE= HKCEE paper AL= HKALE paper related pastpaper questions directly to see whether you really understand the topic thoroughly. Prior to exam, use them to identify E.g. CE 09(1) means CE paper which part is more important, i.e question 1 more frequently asked. 5* Exam Reminder Concept Map 概念圖 5** Reference to pastpaper MC questions is listed in a table at the end of each section. Frequently asked logical flows that are worth memorizing for exams. Exam tips and common errors that are section-specific. They show the relationship between different important entities within a section. Remember the flows by heart during your revision, especially the keywords, as they can improve the structure of your answers. Read them thoroughly before the exam but no need to recite them. When finished one section, read the mind map and make sure you know the relationship between different ideas. Before the exam, read them if you have enough time but skip them if you don t. Also, pay attention to the advantages, disadvantages, limitations, uses, characteristics, etc. in the book as they are important for MCQ and short questions. They are already in point form for your easy reference. 7

5 Basic Economic Concepts 1. Basic Economic Concepts 1.1 Economics as a Social Science Economics Definition Economics is a social science studying human behaviour in using scarce resources to satisfy unlimited wants. The two major concerns in economics are resources allocation and income distribution. It is the science that explains the choices that we make and how these choices change as we face the problem of scarcity. It can generally be categorized into Microeconomics (study of individuals consumption and production behaviour) and Macroeconomics (study of the economy as a whole). Economics does not concern how to eliminate the problem of scarcity. It concerns how people can maximize their gains given the limited resources available. 1.2 Scarcity Scarcity Definition Scarcity refers to a situation where resources available are insufficient to satisfy all human wants, i.e. resources are limited in supply relative to unlimited human wants. Scarcity is a relative concept (whether a resource is scarce or not depends on its relative quantity rather than its absolute quantity). Resources are limited in supply (Qd > Qs at P = 0) and it can be classified into: Natural resources, e.g. land and minerals. Human resources, e.g. entrepreneurs and labour. Man-made resources, e.g. machinery. Both the rich and the poor have to face scarcity. Scarcity has nothing to do with the flexibility of supply and the richness of the decision maker. Wants Wants are human desires for goods and services. Wants are unlimited and can never be satisfied completely. Unlimited Wants Limited Resources Scarcity Choice Opportunity Cost As resources are scarce relative to unlimited wants, economic problems arise and people have to make choices. 11

6 Firms and Production Law of Diminishing Marginal Returns Definition When variable factors are continuously/successively added to a given quantity of fixed factors, holding other factors constant, the marginal product of variable factor will eventually diminish/drop eventually. SP: (3) CE: 09(3), 07(3), 06(4), 03(2), 01(3), 00(4) AL: 01(I)(5) Illustration Illustration of law of diminishing marginal returns (LODMR): Land (m 2 ) Labour (units) Total Product (toys in units) Average Product (toys in units) Marginal Product of labour (toys in units) Output (Unit) The diminishing of MP does not mean MP has to be negative. The LODMR applies to short run production only. It is not a must for machine to be a fixed factor; it can also be a variable factor. Note that MP curve is not required in the HKDSE syllabus. It is drawn here for your easy reference. Exam Technique In examination, there are usually only one fixed factor and one variable factor. 0 Fixed factor: Land Increasing MP Variable factor: Labour Decreasing MP As the marginal product diminishes from 30 units to 20 units when the 4 th unit of labour / after the 3 rd unit of labour is added, the law of diminishing marginal returns applies to the production when the 4 th unit of labour / after the 3 rd unit of labour is added. Reasons for the decrease in marginal product: - Too crowded / Insufficient fixed factors or excessive variable factors - Inefficient administration / coordination of production The optimal unit of labour employed on the 1000 m 2 of land is 3. Variable factor (unit) Please note that the law of diminishing marginal returns does not apply to production before the 4 th unit of labour is added. Reasons for the increase in productivity of labour: - Division of labour / specialization leads to a change of methods of production which lowers the average cost of production [For detail, please refer to Ch3.3] MP When asked whether the LODMR applies to a production, remember to: ❶ Identify and state the fixed factor(s) and variable factor(s) ❷ Recalculate the MP of variable factor from AP or TP ❸ Check when the MP will diminish 35

7 HKDSE Economics (Section C) Exam Reminder 1. Students should not mix up change in demand (shifting of the demand curve and is affected by factors other than prices) and change in quantity demanded (movement along the demand curve and is affected by prices only). 2. Expectation of changes in future prices affects the current demand, but not the quantity demanded. 3. Law of Demand concerns with the relative prices and the quantity demanded. 4. Market price may affect both quantity demanded and quantity transacted. 5. Note the difference between complementary goods and derived demand. 6. Start explanation of changes from one equilibrium point to another equilibrium point. 7. Only the absolute value of E d is considered, therefore E d =-3 is less elastic than E d = Candidates should present the effect on total revenue due to a change in price in the following sequence (and with an appropriate diagram): 1. % ( ) in P and % ( ) in Q t 2. comparison of the changes of the two components 3. the change of the TR 9. Candidates should beware of the specific functions of different types of market interventions like price ceiling, price floor, quotas, tax and subsidy. 70

8 Pastpaper MC Questions Distribution Table Market and Price Topics HKDSE sample papers CE multiple-choice questions AL multiple-choice questions Law of demand (06) 08(06), 00(05) 10(I)(9), 09(I)(11)(25), 08(I)(07)(09), 07(I)(08), 06(I)(08), 03(I)(30), 02(I)(15) Excess demand and - 05(07), 04(13), 00(03) - excess supply Scarcity and (I)(01), 02(I)(17) shortage Money price and relative price (I)(14), 08(I)(16), 04(I)(21), 01(I)(08)(20), 00(I)(22) Change in demand - 10(06)(07), 09(05), 08(04), 05(I)(06) 07(05)(10), 06(07), 05(04), 04(05), 03(14), 02(07), 01(04), 01(05), 00(09)(12) Change in quantity - 04(08), 02(08) - demanded Change in supply - 07(05), 06(06), 06(08), 05(09), - 05(13), 04(06), 01(03)(04) Change in quantity supplied - 09(06), 06(07) - Effects of changes in demand and supply (15) 10(08), 09(07) (12), 08(05)(09), 07(04), 06(05), 05(05), 04(07), 02(09), 02(10), 02(50), 01(10), 00(07) Consumer surplus (20) - 08(I)(05), 01(I)(01) Producer surplus (20) - - Functions of price Types of price elasticity of demand (14) 07(09)(11), 05(12), 04(09), 03(05)(13), 00(10) 04(I)(17) Relationship between price elasticity of demand and total revenue Factors affecting the elasticity of demand Types of price elasticity of supply Factors affecting elasticity of supply - 10(09), 09(09), 08(10), 03(07), 01(06) - 05(I)(07), 04(I)(17) - 10(10) - (13) 09(10), 06(09), 04(10) Price intervention - 10(14), 09(08)(11), 08(11)(12), 00(II)(28) 07(07), 05(12)(13), 02(06) Quantity - 10(13), 07(08), 06(10), - intervention 05(10)(11) Per unit tax (11) 10(11)(12), 09(13), 08(07)(08), - 07(06), 06(11), 04(10), 03(11), 02(11), 01(08) Per unit subsidy (12)(20) 04(10), 01(07), 00(08)(11) 09(II)(26) 71

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