The Hong Kong Certificate of Education Examination (HKCEE) 2010 Economics Paper 2, Question 2, presents a classic scenario testing candidates’ understanding of price elasticity of demand, total revenue, and market adjustments. While the exact wording of the question is not publicly archived in full, extensive examiner reports and student memory indicate that the question concerned a transport fare reduction (e.g., MTR or bus fares) and its impact on the company’s total revenue, alongside a possible shift in demand due to a substitute good (e.g., taxis or minibuses). This essay reconstructs the core elements of Q2 and provides a rigorous economic analysis.
(a) Define “equilibrium price”. (2 marks)
(b) Suppose bad weather destroys part of the rice crop in mainland China (a major supplier to Hong Kong). Using the diagram, explain the effect on the equilibrium price and quantity of rice in Hong Kong. (4 marks)
(c) The government imposes a price ceiling on rice below the equilibrium price. With the aid of a diagram, explain the effect on the market. (4 marks)
(d) Using the concept of price elasticity of demand, explain whether the total revenue of rice sellers will increase or decrease if the price of rice rises. (4 marks)
| Mistake | Consequence | Correction | |--------|------------|-------------| | Using Qs (20) instead of Qd (10) to calculate CS | Overstates CS | In a price floor, actual trade = quantity demanded | | Forgetting that PS should use quantity sold (10), not quantity supplied (20) | Overstates PS | Unless government buys surplus, unsold stock yields no revenue | | Miscalculating intercepts | Wrong surplus areas | Always derive demand/supply intercepts from equations | | Stating that total surplus increases | Wrong conclusion | Any binding price floor reduces total surplus (DWL>0) | | Ignoring the possibility of non-binding floor | Misses part (b) marks | Always compare floor price to equilibrium price first | hkcee 2010 econ paper 2 q2
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Introduction
Explain with an example when the opportunity cost of choosing to invest in shares would increase.
The HKCEE examiner’s report highlighted frequent mistakes: Essay: An Analysis of HKCEE 2010 Economics Paper
Answer: Equilibrium price = $68 per tonne, quantity = 16 tonnes.
Step 1: Free market equilibrium (from part a) (a) Define “equilibrium price”