1. CE Economics Common Weaknesses of Candidates

2. 2 1. Irrelevant Answers 1.1 [1999/3] Study following two advertisements: 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) Company A Lorry Driver Wanted Wage: $10,000 per month Company B Lorry Driver Wanted Wage: $200 per trip

3. 3 Comment Some candidates missed the point that the question asked for the advantages from the viewpoint of the employers rather than the employees.

4. 4 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)

5. 5 Comment Some candidates answered question from the viewpoint of the shareholders rather than the company.

6. 6 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: 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)

7. 7 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.

8. 8 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:

9. 9 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)

10. 10 Comments When the calculating the opportunity cost, some candidates failed to recognize that opportunity cost is expressed in terms of other goods.

11. 11 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)

12. 12 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.

13. 13 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)

14. 14 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’.

15. 15 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)

16. 16 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.

17. 17 4. Lack of skills interpreting numerical data 4.1 [2000/6] Study the following data about Hong Kong.

18. 18 (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)

19. 19 Comment Some candidates wrongly concluded from the data that the inflation rate and the growth rate of GDP were decreasing.

20. 20 4.2 [2000/4] The table below shows the production of a firm. State the law of diminishing marginal returns and explain whether the above data illustrate the law. (6 marks)

21. 21 Comment Some candidates failed to notice that the data given in the question was the average output rather than the marginal output of labour.

22. 22 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)

23. 23 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.

24. 24 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)

25. 25 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.

26. 26 5.3 [2002/3] Calculate the average labour productivity of each firm and state TWO reasons why the two productivities are different.(4 marks)

27. 27 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.