Transcript Comment

CE Economics
Common Weaknesses
of Candidates
1. Irrelevant Answers

1.1 [1999/3]
Study following two advertisements:
Company A
Lorry Driver Wanted
Wage: $10,000 per month
Company B
Lorry Driver Wanted
Wage: $200 per trip
Name the two types of wage payment method and
give ONE advantages of EACH over the other
from the viewpoint of the employer. Explain your
answer.
(6 marks)
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Comment
Some candidates missed the point that the question
asked for the advantages from the viewpoint of the
employers rather than the employees.
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
1.2 [1999/4]
In order to raise capital for expansion, a limited
company is considering whether to issue new
shares or debentures.
From the viewpoint of the company, give ONE
advantage of issuing shares over debentures.
(4 marks)
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Comment
Some candidates answered question from the
viewpoint of the shareholders rather than the
company.
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2. Calculation and diagrams

2.1 [1999/9(a)]
Suppose the output of red wine and cars in France
and Japan per unit of resources are as followings:
France
Japan
Red wine (units)
4
OR
1
OR
Cars (units)
2
2
Suppose France and Japan trade at an exchange
ratio of 3 units of red wine to 2 units of cars.
Calculate the gain per unit of import for France.
(6 marks)
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Comment
When calculating the opportunity cost, some
candidates failed to recognize the opportunity cost
is expressed in terms of other goods. Some
candidates wrongly calculated the gain per unit of
export rather than of import for France.
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
2.2 [2001/9(a)(ii)]
Suppose the output of garments and computers per
unit of resources of the two economies, Hong
Kong and the USA, are as follows:
Garments (units)
Computer (units)
Hong Kong
4
2
OR
USA
4
OR
5
8
Suppose the exporting economy has to pay a
transportation cost of $0.5 units of computers to
export 1 unit of garments. Find the possible range
of terms of trade (for 1 unit of garments) that is
mutually beneficial for both economies. (3 marks)
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Comments
When the calculating the opportunity cost,
some candidates failed to recognize that
opportunity cost is expressed in terms of other
goods.
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
2.3 [2002/2]
Suppose the Organization of Petroleum Exporting
Countries cuts its oil production. At the same time,
the demand for automobiles decreases.
With the aid of a diagram, explain under what
condition the price of gasoline would increase.
(7 marks)
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Comment
Some candidates mixed up the decrease in demand
for automobiles and the decrease in demand for
gasoline. Some candidates even compared the extent
of the decrease in demand for automobiles with that
of the decrease in supply of gasoline.
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3. Overlooking important assumptions /
conditions in the question

3.1 [1999/6(a)]
Suppose the legal reserve ratio for banks is 25%
and Bank A does not keep excess reserves. Aaron
won an overseas scholarship and received
remittance of $10,000. He deposited it in Bank A.
Bank A lent out all excess reserves to GiGi. She
then deposited the money into Bank B, but Bank B
could not find any borrowers.
Calculate the amount of deposits thus created in the
economy.
(4 marks)
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Comments
Some candidates assumed that the creation process
went on and on when calculating the maximum
possible amount of deposit of the whole banking
system. They failed to recognize that the process of
deposit creation stopped when ‘Bank B could not
find any borrowers’.
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
3.2 [1999/11(c)]
Some taxi drivers buy taxis by borrowing from
banks. If the general price level goes down
unexpectedly, explain under what circumstances
these taxi drivers will
(i)
lose.
(ii)
have no gain or loss.
(6 marks)
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Comment
Some candidates overlooked the important
information about buying taxis ‘by borrowing from
banks’ and merely provided an answer about their
loss from the decrease in the market value of taxis.
Some weaker candidates even treated the question as
one on inflation instead of a decrease in the general
price level.
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4. Lack of skills interpreting
numerical data

4.1 [2000/6]
Study the following data about Hong Kong.
Year
Quarter
1998
2nd
3rd
4th
1st
1999
Year on year %
change in real
gross domestic
product (GDP)
- 5.1
- 6.8
- 5.7
- 3.4
Unemployment
rate (%)
Composite
consumer
price index
4.4
5.0
5.7
6.2
119.2
118.6
116.1
115.6
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(a) Identify the phase of business cycle the economy
was in during the above period of time. Give the
THREE economic phenomena of this phase as
indicated by the above data.
(4 marks)
(b) Some workers’ salaries were frozen during this
period of time. Explain how their real income would
change in this period.
(3 marks)
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Comment
Some candidates wrongly concluded from the data
that the inflation rate and the growth rate of GDP
were decreasing.
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
4.2 [2000/4]
The table below shows the production of a firm.
Machinery
(units)
10
10
10
10
10
Labour
(units)
7
8
9
10
11
Average output of labour
(units)
30
34
37
39
40
State the law of diminishing marginal returns and
explain whether the above data illustrate the law.
(6 marks)
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Comment
Some candidates failed to notice that the data given
in the question was the average output rather than
the marginal output of labour.
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5. Lack of Thorough Understanding of Basic Concepts /
Principles and the Inability to Apply Them to Hypothetical
situations

5.1 [2000/10(b)(ii)]
Suppose Bank X of economy A takes over Bank Y of
economy B by buying up its controlling share worth
$5 million.
(I) Define opportunity cost.
(2 marks)
(II) Assume Bank X does not know that Bank Y has a
huge amount of hidden debt. Explain whether this
would affect the opportunity cost of the takeover to
Bank X.
(3 marks)
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Comment
Some candidates had the misconception that the cost
of takeover would increase with a huge amount of
hidden debt. They failed to recognize that the hidden
debt would only reduce the value but not the cost of
the takeover.
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
5.2 [2002/6]
In Hong Kong, Mr. Lee withdrew $300,000 from his
savings account in Bank A. He deposited 50% of this
amount with a deposit-taking company and remitted
through a bank another 20% of this amount overseas.
He put the rest of the money in his safety box in
Bank B.
What is the immediate effect of the above
transaction on Hong Kong’s money supply M1 and
M3? Explain your answer.
(6 marks)
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Comment
Despite the fact that most candidates were able to
define M1 and M3, they were weak in applying the
concepts to a hypothetical situation illustrating
changes in M1 and M3. Even some better candidates
failed to point out that money put in the safety box
was regarded as cash in public circulation in Hong
Kong nor in the deposits with the monetary sector of
Hong Kong.
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
5.3 [2002/3]
Firm A
Firm B
Number of workers employed
100
120
Number of working hours per
worker
500
800
100 000
144 000
Output (units)
Calculate the average labour productivity of each
firm and state TWO reasons why the two
productivities are different.
(4 marks)
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Comment
Some candidates failed to recognize that the average
labour productivity should be in terms of man-hours.
They incorrectly provided their answer in terms of
output per worker or man. Moreover, in explaining
the reasons for the difference in labour productivity,
some weaker candidates wrongly gave the number of
working hours as their answer.
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