HKDSE Economics: VIQ MICRO S.
4_Chapter 11 Name:
Q.1
B & S INTL HLDG 賓仕國際 (01705.HK), the franchisee of Taiwan beverage brand "TenRen 天仁茗茶"
in Hong Kong, raises capital by issuing 100 million shares to the public at $0.71 per share. There is an over-
subscription of around 2,600 times. That means only 1/2,600 of all fund provided by people who apply for
these shares will be successful in their application. Explain the economic phenomenon described above with
the aid of a diagram. Also indicate in the diagram the amount of capital raised. (7 marks)
P
S
The amount of
capital raised
(= $71 million)
$0.71
D1
Excess demand
Q
100 million
Indicate in the diagram
A vertical supply curve (1)
The price is set below the equilibrium price (1)
Excess demand (1)
The amount of capital raised is equal to $0.71 x 100 million (1)
Verbal elaboration
The supply of shares is fixed (100 million shares) and hence supply curve is vertical. (1)
Over-subscription means there is an excess demand (or shortage) for the shares at $0.71. (1)
Which implies the price $0.71 per share is below equilibrium price. (1)
The amount of capital raised is equal to $0.71 x 100 million.
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Q.2
In 2018, the Hong Kong Housing Authority sold Lai Tsui Court (麗翠苑) living units under Home
Ownership Scheme (HOS) in Cheung Sha Wan at 42% of the assessed market value. Lai Tsui Court
provided 2,545 flats for low-income families (total income of all family members lower than $27,920). More
than 40,000 applications had been received from eligible families.
(a) Use your knowledge of demand and supply to describe the HOS living units market. (4 marks)
Illustrate your answer with the aid of a diagram.
(b) Some people urged the government to relax the income restriction as middle income (4 marks)
group also found private housing units unaffordable. If the income restriction on the
applicants is relaxed from $27,920 to $50,000, explain the effect on the HOS living
units market by using the diagram in (a).
P
S
Excess demand 2
P1
Excess demand 1 D2
D1
Q
Q = 2,545
(a) Indicate in the diagram:
Vertical supply curve (2,545 flats)
P1 < equilibrium price (1)
Show original excess demand (ED1) (1)
Verbal elaboration:
40,000 applications apply for 2,545 flats means there is excess demand. (1)
Which implies that the price of Lai Tsui Court (麗翠苑) is set below the equilibrium (1)
price.
(b) Indicate in the diagram:
Demand increases (1)
Excess demand 2 > Excess demand 1 (1)
Verbal elaboration:
The relaxation of income restriction means more people can apply for HOS housing (1)
units, demand for HOS housing units increases.
Excess demand problem gets more serious (from excess demand 1 to excess demand 2). (1)
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Q.3
World Exposition 2010 (Expo) is held in Shanghai, entrance capacity per day is fixed.
(a) Many visitors could not buy a ticket for the first few days even though they are willing to pay the
official ticket price. Draw a demand-supply diagram for this situation. Explain your answer. (5 marks)
(b) After its commencement, there were many negative media reports about the arrangement of the Expo.
Though the price of the ticket did not change, there had been many tickets unsold in the later days.
Explain this economic phenomenon with the aid of the same diagram in (a). (5 marks)
P
ED = Excess demand
S1 ES = Excess supply
ES
P1
ED D1
D2
Q
Q1
(a) Indicate in the diagram:
Vertical supply curve (because entrance capacity per day is fixed) (1)
P1 (official ticket price) < original equilibrium price (1)
Excess demand (1)
Verbal elaboration:
Many visitors could not buy a ticket even though they are willing to pay the official (1)
ticket price means there is excess demand for the ticket for the first few days.
Which implies that official ticket price is set below the equilibrium price. (1)
(a) Indicate in the diagram:
Demand decreases (1)
P1 > new equilibrium price (1)
Excess supply (1)
Verbal elaboration:
Demand for ticket decreases due to the negative media reports about the Expo. (1)
Many tickets unsold means there is excess supply which further means official ticket (1)
price > new equilibrium price.
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Q.4
The 2018 Winter Olympic was held in PyeongChang County, South Korea. It is expected that many people
from all over the world went to PyeongChang County to watch the matches. Suppose the rental
accommodation (出租住宿單位) of hotels and guest houses in PyeongChang County was fixed in supply.
(a) In normal days, average hotels and guest houses occupancy rate 酒店入住率 is (4 marks)
about 90% (i.e. there are vacant rooms). Draw a supply-demand diagram to illustrate
this situation. Explain your answer.
(b) As it is expected that there will be many tourists visiting PyeongChang County, most (5 marks)
hotels and guest houses in PyeongChang County greatly raise the price. As a result,
during the period of 2018 Winter Olympic `the average hotels and guest houses
occupancy rate 酒店入住率 falls to 80% despite of an increase in the number of
tourists. Explain this situation using the same supply-demand diagram in (a).
P
ES2 S1
P2 ES = Excess supply
ES1
P1
D2
D1
Q
Q
(a) Indicate in the diagram
Vertical supply curve (1)
P1 > original equilibrium price (1)
Excess supply (ES1) (1)
Verbal elaboration
There are vacant rooms means there are excess supply which further means the price set (1)
by the hotel > equilibrium price
(b) Indicate in the diagram
Demand increases (1)
Price increases (1)
Excess supply increases (i.e. ES2 > ES1) (1)
Verbal elaboration
With an increase in the number of tourists during 2018 Winter Olympic, demand for (1)
rental accommodation increases.
Occupancy rate falls from 90% to 80% means the excess supply increases (ES2 > ES1). (1)
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Q.5 (HKCEE 2006)
Each year, during the tourism peak season of the National Day golden week in October, a large number of
tourists from Mainland China visit Hong Kong.
Many of these tourists stay at local 3-star hotels. Assume that the room charges of these hotels are the same
at the points in time.
(i) Every September these hotels have vacant rooms. Draw a supply-demand diagram in Figure 2 for this
situation. Explain your answer. (3 marks)
(ii) As compared to September, these hotels have fewer vacant rooms during the National Day golden week
in October even though they raise their room charges during this week. Explain your answer. (6 marks)
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Q.6
Country A has two Cross Harbour Tunnels, i.e. Tunnel A and Tunnel B. The tolls of Tunnel B is higher than
that of Tunnel A. There is no congestion problem in Tunnel B while Tunnel A is heavily congested during
rush hours. Both tunnels are owned and operated by the government.
(a) Illustrate the congestion problem of Tunnel A during rush hours in a diagram. (3 marks)
(b) Suggest TWO measures to relieve the congestion problem of Tunnel A during rush (11 marks)
hours. Explain your answers in TWO separate diagrams.
A = Original excess demand or congestion problem
B = New excess demand or congestion problem
Price Diagram 1 Price Diagram 2
S1 S1
P2
B B
P1 P1
A D A D1
D2
Q Quantity Q Quantity
(a) Indicate in the diagram
Vertical supply curve (1)
P1 < equilibrium wage (1)
Excess demand for Tunnel A’s service (1)
(b) Indicate in the diagram 1: Measure 1
Price increases (1)
Excess demand for Tunnel A’s service decreases (1)
Verbal elaboration
The government can raise the tolls of Tunnel A, (1)
Then quantity demanded for Tunnel A’s service decreases. (1)
Then the congestion problem of Tunnel A is relieved from A to B. (1)
Indicate in the diagram 2: Measure 2
Demand decreases (1)
Excess demand for Tunnel A’s service decreases (1)
Verbal elaboration
The government can lowers the tolls of Tunnel B. (1)
As Tunnel A and B are substitute, then demand for Tunnel A’ s service decreases. (2)
Then the congestion problem of Tunnel A is relieved from A to B. (1)
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Q.7 (HKDSE 2012PP)
(ai)
(aii)
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Q.8 (HKCEE 2010)
The 2008 financial tsunami had a huge impact on Economy A.
Given a fixed wage rate, explain with the aid of a supply-demand diagram why a decline in the business of
the financial sector due to the financial tsunami would increase unemployment in this sector. Also indicate in
the diagram the loss in total wage earnings of the employees in this sector. (9 marks)
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Q.9 (HKCEE 1999)
There is a serious unemployment problem in Hong Kong. Given a fixed wage rate, explain why a decrease
in the profits tax rate may reduce unemployment. (8 marks)
Indicate in the diagram:
W > equilibrium wage (1)
Original unemployment = U0 (1)
Demand for labour increases (1)
New unemployment = U1 (1)
Verbal elaboration:
When profits tax rate decreases, profit after tax (investment return) will rise. (1)
Then incentive to invest will increase and hence investment will increase. (1)
Then (derived) demand for labour will increase. (1)
Then unemployment is reduced from U0 to U1. (1)
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Q.10 (HKDSE 2013)
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Q.11
Many Filipino maids are waiting to come to work in Hong Kong as a domestic helper. They usually have to
wait for few months before obtaining employment in Hong Kong. In 2017, the government of China
proposed to open the door for Filipino maids to work in China and offer a salary significantly higher than
that of Hong Kong. Some households in Hong Kong is worried that Hong Kong may face shortage problem
of foreign domestic helpers after that even if they offer higher wages to foreign domestic helpers. Explain
their point of view with the aid of a diagram. (9 marks)
Wage S2
S1
W2 Labour surplus
Labour shortage
W1
D1
Quantity of labour
Q2 Q1
Indicate in the diagram:
W1 > original equilibrium wage (1)
Excess supply (Labour surplus) of Filipino maids exists (1)
Supply decreases (1)
Wages increase from W1 to W2, W2 < new equilibrium wage (1)
Excess demand (labour shortage) exists after supply decreases and Wage increases (1)
Verbal elaboration:
Filipino maids have to wait for few months before obtaining employment in Hong Kong (1)
means there is excess supply / surplus of Filipino maids which implies current wage rate >
Original equilibrium wage
Filipino maids working in China and Hong Kong are in competitive supply (1)
Due to significantly higher salary in China, some Filipino maids may go to work in China, (1)
then supply of foreign domestic helpers in Hong Kong decreases,
If decrease in supply is very large, then even when wage increases, it is still possible that the (1)
new wage (W2) is below new equilibrium wage and hence shortage problem exists.
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Q.12
Hong Kong is facing a serious shortage of construction workers.
(a) Illustrate the above phenomenon in a demand-supply diagram. (2 marks)
(b) Suggest TWO measures which would help to relieve the above problem. Explain your (10 marks)
answers in TWO separate diagrams.
A = Original Labour shortage
B = New Labour shortage
Wage Diagram 1 Wage Diagram 2
S1 S1
S2
W2 B
B
W1 W1
D D
A A
Quantity of labour Quantity of labour
(a) Indicate in the diagram
W1 < equilibrium wage (1)
Excess demand for labour OR Labour shortage (1)
(b) Indicate in the diagram 1: Measure 1
Wage increases (1)
Excess demand for labour decreases OR Labour shortage decreases (1)
Verbal elaboration
If wage rate of construction workers is raised, (1)
Then quantity supplied increases as more people may be attracted to be a construction (1)
worker and quantity demanded for labour decreases.
Then the problem of labour shortage is reduced from A to B. (1)
Indicate in the diagram 2: Measure 2
Supply increases (1)
Excess demand for labour decreases OR Labour shortage decreases (1)
Verbal elaboration
If the government import foreign construction workers to Hong Kong, (or to increase (1)
female participation in construction industry and in the labour force Not for HK)
Then supply of construction workers will increase. (1)
Then the problem of labour shortage is reduced from A to B. (1)
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