頁四第張大第日一十月五年申庚服夏 WAH KIU YAT PO
1980
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(b)
Suggested Answers to Economics
Section A
Limited liability means... that a shareholder is liable for the company's debts not beyond the fully paid-up capital of the shares he holds.
Unlimited liability means that the owner is liable for all the company's debts, matter how much he has. Invested in the company.
no
Stock exchange performs the following functions:
a. It acts as a channel
through which savings of the public can be invested in public companies.
It acts as a capital market in which public companies can raise capital efficiently. It reflects the economic conditions of the country" under normal
d. It helps increase the
(a)
(b)
X
circumstances.
mobility of loanable funds
in the economy.
It provides information on business per
performance and
prospects of individual firms.
Wages which are in terms of money are called money wages, while wages which are in terms of the quantity of goods and services are -called real wages
Real wage in 1970
Money wage in 1970 Consumer Price Index in 1980 Consumer Price Index în 1970
$750 X
100
150
-$500
Mr. Wong earning
$100,000 per year has to
pay 20% ($20,000+ $100,000)
of it in tax.
Mr. Chan earning
$300,000 per year has to
30% ($90,000-$300, 000)
pay 204 0
of it in tax.
This shows that in this tax system taxpayer has to pay a greater proportion of his income in tax as his
income level rises,
Therefore the tax system is progressive."
Gross National Product is the sum of Gross Domestic Product and net income from abroad. The latter is the difference between income from factors of production owned by home residents and those owned by foreigners in the home country. U
o
6. Opportunity cost is the
best alternative that has to be foregone if one chooses a
as, particular thing.
75
(a)
For example, John's income can enable him to buy either a car or a set of Hi Fi equipment. If he chooses to buy a car, the the appertunity cost of owning a car will be the Hi Fi equipment which he has to forego,
The real flow of income
10.
means that households supply factors of production to the firms for employment in the
production of goods and
services, which are sold to households by firms.
The money flow of income means that households receive income from firms as returns to their provision of factor services.
The
households' income are then
spent on t the buying of goods
and services supplied firms,
Average cost of product X falls as output level rises because of economies of scale in technical production, in marketing, in mass buying, in finance, in management, and in
research and development,
Short run is a time period over which the quantity of some inputs are fixed and cannot be varied.
Long run is a period of time over which all inputs can be varied for time is long enough to do so.
(a) Visible receipt (b) Visible payment (c) Invisible receipt
(d) Invisible payment
(e) Invisible receipt
Section BTMTM
11.
((a)
An increased anti- harcotics efforts has led to a fall in supply of heroin. As shown in Fig. 1 supply curve shifts from S1 to S2. representing a fall in supply. The price of heroin therefore rises while demand still
unch
The rem cise in price is drastic because both the demand and supply of herom are inelastic The demand for heroin is inelastic because drug addicts are deep rooted in using it. Supply of heroin is inelastic because it is illegal and therefore
difficult to increase its supply.
Price
Quantity
D-original demand curve S1=original supply curve S2-new supply curve- -OP,=original price level
OP2-new price level
The demand for taxi- services is elastic because there are a number of substitutes which can replace. taxi-services. Therefore
a rise in price of taxi- Services will lead to a reduction in total revenue earned by taxi drivers because quantity demanded „decreases more than the proportionate change in price. Fig 2 shows that as price increases from OP↑ to OP2, quantity demanded will fall from QQ1 to 0Q2, whereby the new total revenue (9Q2 x OP2) will be less than the original total revenue (OQ1 × OP1
日三廿月六年〇八九一届公年九十六國民雅中
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again in the banking system and therefore will again lead to further lending as banks have excess reserve available in the system.
(c) ) As a result of growing.
12:
Quantity
શું
original price. new price.
OQ1=original quantity.
demanded
OQ2-new quantity demanded OQ1AP1=original total
revenue OQ2BP2 new total revenue
are
The functions of retailers.
(1) Storing a wide variety of
goods to meet different consumers' needs and therefore providing wider choice for consumersk (2) Bring goods to where it is. most convenient for the customers at the appropriate time.
(3) Sorting the goods info
different grades with. proper packing.
(4) Providing special services
to customers, such as technical advice, after- sale services, product information services, etc, (5) Bearing the risk of
deterioration of goods, and also the risk of :: anticipating consumer demand.
The functions of wholesalers are
(1) Acting as a bridge
between manufacturers and retailers. Wholesalers buy in bulk from producers and sell in small quantities to retailers.
(2) Providing warehouse
facilities to store goods in large quantities.
(3) Providing market information to manufacturers so that consumers' needs can be best met
(4) Helping finance production
and distribution by allowing credits to retailers and paying
promptly to
manufacturers.
(5) Helping develop the
market for the product. However, with the increasing popularity of mail- order business and super- market operation, the role of wholesalers and retailers has been affected a little.
13. (a)
-Credit can be created under a fractional reserve banking system. In such a system, banks are required to hold only a fraction of their deposit Liabilities. If they make full use of the excess reserve available in the loans and - investment to busines
an increase in cash eposit will lead to an expansi
credit
In the banking system EGAD If banks are required to keep only 25% of their deposit liabilities as required.. reserve, and if there is an initial increase in deposit by $100 within the banking system, bank receiving this $100 deposit will keep $25 as reserve and lend $75 to businessmen. Pe
People receiving this $75 will sooner or later deposit it.
To sum up, the credit can be expanded to the-f
-fullest. extent through a banking multiplier of its initial deposit, provided that no. excess reserves are idle. and no leakage out of the system exists.
The banking multiplier is the reciprocal of the required reserve ratio of the total deposit liabilities.
(b) The main limitations on
credit creation are
(a)
(b)
15.
leakage of cash out of the banking system
ii, banks' holding reserves
more than required ill lack of demand for bank
loans from business
Sector
iv. the legal reserve
requirement ratio.
To overcome rising costs of production in Hong Kong's export industries, the business sector should
Strive to increase productivity by improving
gement skills,
ma
relations, and nical know-how
more advanced and- sophisticated machinery and equipment with more capital-intensive.
production methods to replace increasingly expensive labour,... limake full use of land with
good land planning and iv. search for more new
suppliers and sources of raw materials, component parts, and semi-finished
To cope with rising production costs, the government could
supply more land for industrial use, especially through the Industrial. Estate Scheme, and
16.
(a):
(b)
...
population, the world as a whole will suffer food problem and energy crisis. The gap between the developed and the developing nations will became wider. There will be unemployment problem and a slow down in the world-wide economic growth.
Governments are concerned about inflation because it has the following. adverse effects on the
economy:
grant land to potential industrialists at low
17.
Price:
(a)
provide more training facilities and programmes to raise labour
productivity, such as apprenticeship schemes: on-the-job training, etc,
and
ili adopt stabilization policy
through fiscal and monetary measures.
The economic effects of a growing population on an underpopulated country are as follows:
There will be an increase in per capita income due to. increasing returns. Economic growth is stimulated. Factor inputs are better utilized. However, there will be larger demand
goods and services and luce pressure on the
ision
'social services.
population in
ountry wil
returns in duction in
ns such as lon and unemployment
and
greater
will demand for
ices. Farther external
such as; rcrowding, pollution, traffic congestion will exist.
Inflation can lead to higher production costs. Firms will have to raise prices to cover increased costs, thus resulting in a higher costs of living. Workers will demand for higher wages. It will lead to a further rise în production costs and prices of goods. ii. Inflation will encourage the sales of imports at . home, but weaken the competitiveness of exports in overseas markets. There will be an adverse effect on the country's balance of payments.✨ iii.Inflation will be beneficial
to debtors and risky. investors. Creditors, conservative businessmen,
and fixed income earners will suffer. Inflation
without proper
(b)
control will lead to hyperinflation, and the monetary system of the country may break down.
To curb inflation, the government can increase taxation to discourage excess demand from households and over-investment from the business sectors. Moreover, it can reduce government expenditure so that there will be less demand for goods and services from the public Sector:
The modernization of the People's Republic of China
necessitates
tes a greater demand for Hong Kong's products and services because Hong Kong is near « to China, Also, local export | firms can set up plants in China to produce semp finished goods at lower costs. However, the success of modernization of China will make her become a strong competitor of Hong Kong's exports in some manner But it depends on the quality and costs of both Hong Kong and China's exports,
In order to finance the industrial and business activities in the modernization of China, more China's banks will be set up in Hong Kong to handle trades between China and the rest of the world, and to finance investment projects undertaken in Hong Kong. Also, overseas banks will · set up branches in Hong Kong so that they can help trades between their own countries and China. As a result, the banking business and financial services sector in Hong Kong will boom as a
result of China's modernization.