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F.

5 Economics
Chp 12 Efficiency, Equity and the Role of
Government
(Past Papers)

Name:

___________________

Class:

__________(

Group X_____

F.5_Efficiency, Equity and the Role of Government_Past Papers

Paper 1 MC Questions:
1.

(Sample paper Q19) Ans: B


2.

(Practice paper Q18) Ans: B

F.5_Efficiency, Equity and the Role of Government_Past Papers

3.

(2012 Q20) Ans: D


4. Which of the following are possible causes of income inequality among
individuals?
(1) difference in race
(2) difference in capital ownership
(c) difference in health
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)
5.

(2012 Q21)

Suppose the market equilibrium output level is greater than the efficient output
level. It implies
A.
B.

total social surplus will increase if output is reduced towards the efficient
output level.
at the equilibrium output level, marginal benefit is greater than marginal
cost.

F.5_Efficiency, Equity and the Role of Government_Past Papers

C.
D.

6.

the sum of consumer surplus and producer surplus is maximized as the


market output level satisfies the equilibrium condition.
government intervention is necessary to reduce output as there is overproduction.
(2013 Q18)

Refer to the following demand-supply diagram of a good with the government


setting a quota at Q1.

Which of the following will be the result of a reduction in quota on the good?

7.

(1)
(2)
(3)

The total expenditure on the good may increase or decrease.


The consumer surplus will decrease.
The total social surplus may increase or decrease.

A.
B.
C.
D.

(1) only
(1) and (2) only
(2) and (3) only
(1), (2) and (3) only

(2013 Q19)

A beekeeper keeps the bees for their honey. The bee-keeping benefits the farmers
in the orchard nearby because the bees help pollinate the fruits in the orchard.
Which of the following statements about this case is correct?
A.
B.
C.

There will be a divergence between private and social benefits and the
honey is over-produced.
The beekeeper should be subsidized by the government to improve
economic efficiency.
If the value of honey is higher than the value of fruits, there is no need for
the government to intervene to correct the externality.

F.5_Efficiency, Equity and the Role of Government_Past Papers

D.

8.

9.

There will be no divergence between private and social benefits if the


orchard nearby is owned by the beekeeper.
(2013 Q20)

Koreans pop singers are becoming more popular in Hong Kong. To these singers,
which of the following are their private benefits?
(1)
(2)
(3)
(4)

the rise in royalties from the sales of their albums


the rise in sales revenue of Korean-designed fashion
the rise in the number of tourists visiting Korea
the rise in revenue shared from their concerts held in Hong Kong

A.
B.
C.

(1) and (3) only


(1) and (4) only
(2) and (3) only

D.

(2) and (4) only

(2014 Q18)

Which of the following are ways to lessen the problem of divergence between
private and social costs in Hong Kong?
(1)
(2)
(3)
(4)

to collect a sewage charge


to collect a university tuition fee
to collect a charge on electricity
to collect a levy on plastic bags

A.
B.
C.
D.

(1) and (3) only


(1) and (4) only
(2) and (3) only
(2) and (4) only

(2014 Q19)

10. Which of the following policies can reduce the Gini coefficient based on postsocial transfer monthly household income in Hong Kong?
A.
B.
C.
D.

to raise the standard tax rate on salaries tax


to reduce the marginal tax rate on salaries tax
to reduce the amount of Comprehensive Social Security Assistance
Schemes
to grant an equal sum of money to the Mandatory provident Fund accounts
of every employee
(2014 Q20)

F.5_Efficiency, Equity and the Role of Government_Past Papers

11. Which of the following are results of the government lowering an effective price
ceiling on a good?
(1)
(2)
(3)

a reduction in the producer surplus


an increase in excess demand
an increase in the total sales revenue if the demand is elastic

A.
B.
C.
D.

(1) and (2) only


(1) and (3) only
(2) and (3) only
(1), (2) and (3)

(2014 Q21)

12. The imposition of a per-unit sales tax on cosmetic will


A.
B.
C.
D.

reduce the total expenditure on cosmetics.


reduce the total sales revenue (net-of-the-tax)
increase the total social surplus in the cosmetics market.
increase the producer surplus in the cosmetics market.

(2014 Q22)

13. Suppose the supply curves of cars and petrol are upward-sloping. If the
government imposes an effective quota on the production of cars,
A.
B.
C.
D.

the total social surplus in the car market will increase.


the producer surplus in the car market will decrease.
the total social surplus in the petrol market will decrease.
the consumer surplus in the petrol market will increase.

(2014 Q23)

Paper II Conventional Questions


1.

Give TWO reasons for the existence of income inequality in an economy.


(4 marks)
(Sample paper Q2)

- Differences in human capital: well-educated people may earn a higher


income
- Discrimination: people of certain gender/race may earn a lower
income because of gender/racial discrimination.
- Any other possible reasons
2@, max: 4
F.5_Efficiency, Equity and the Role of Government_Past Papers

2.

Under the School Textbook Assistance Scheme (STAS), needy students are granted subsidies to
cover the costs of textbooks and miscellaneous school-related expenses. Explain how STAS can
enhance equity in Hong Kong society.
(4 marks) (PP Q11d)

3.

The STAS increases the income of the needy students families while
the rich families cannot enjoy this benefit.
The STAS will help equalize opportunities as it helps the needy
students further their studies.
Education can increase future income of the needy students so it may
help narrow the income gap over time.
Any other relevant point
(2@; max: 4)
According to the report of the United States in 2008, the Gini coefficient of Hong
Kong and Beijing were 0.53 and 0.22 respectively.
(a)
(b)

Was the income gap between the rich and the poor in Hong Kong wider or
narrower than that in Beijing?
(1 mark)
Explain how an increase in the standard tax rate of salaries tax will affect
the post-tax Gini coefficient of Hong Kong. (3 marks) (2012 Q4)

(a) Wider (1)


(b) Lower, because (1)
higher income group has a lower post-tax income while the income
of lower income group remains unchanged.
(2)
4.

In 2011, the Financial Secretary announced the Scheme $6000 which provides to each Hong
Kong permanent resident who is 18 years old or above.
(b) Do you think that the government should introduce the Scheme $6000 to improve equity in
the Hong Kong society? Explain.
(4 marks) (2012 Q10b)

- Equity is a subjective concept that involves value judgements /


different people use different standards of equity
(1)
- Yes, because the $6000 results in a higher percentage increase in
income of the poor. (2)
- No, as it does not help equalize opportunities. Relative to the rich, the
poor do not get more resources to improve their productivity / increase
future income. (2)
- No, it is not equalizing outcome as not everyone can benefit from the
scheme, e.g. non-permanent residents and residents who are below 18
years old are not eligible for the $6000. (2)
(max: 4)
F.5_Efficiency, Equity and the Role of Government_Past Papers

5.

(a) Construction, since the Gini coefficient is lower. (1)


Reasons:
1. The entry to a particular occupation is closely associated with a persons
human capital, which tends to be more homogeneous among the construction
workers than among finance professionals. (2)
2. The construction industry often pays their workers by times rates, which are
more or less uniform across workers. In addition to basic salaries,
compensions to the employees of financing, insurance, real estate and
business services often include performance-based commissions, bonuses
and profit-sharing, which may result in a greater diversity of income within
this industry. (2) (max: 3)
(b) How may the data given in Table 1 and 2 help explain the change in the income
inequality of Hong Kong as reflected in Table 3?
(4 marks) (2013 Q7)
The Gini coefficient, which reflects the degree of income inequality, has increased in
the HK economy as a whole. (1)
Possible reasons:
- As shown in Table 1, income inequality in both the construction and financing,
insurance, real estate and business services industries has increased. Other things
being equal, this would contribute to the increase in the income inequality in the entire
economy. (2)
- As shown in Table 2, there is an increase in the proportion of working population in
F.5_Efficiency, Equity and the Role of Government_Past Papers

the industry with a larger disparity of income (i.e. financing, insurance, real estate and
business services) and a decrease in the industry with a smaller disparity of income
(i.e. construction). Other things being equal, this changing pattern of employment
distribution across the two industries would contribute to the increase in the income
inequality in the entire economy. (2) (max: 3)
6.

The government has launched the Work Incentive Transport Subsidy Scheme
(b) Discuss the effects of the scheme on
(ii) income inequality
(3 marks) (2013 Q11)

It helps to reduce the income inequality. It helps to equalize outcome as it provides


extra money for the lower-income group only./ It increases their opportunity of
finding a job with higher income because they can travel farther away from their
residential area. (3)
7.

Figure 1 shows the market supply and demand curves of Good X. Suppose the
government raises the price floor from Pa to Pb.

With the aid of Figure 1, explain whether the rise in the price floor could
enhance efficiency.
(6 marks) (2014 Q3)

F.5_Efficiency, Equity and the Role of Government_Past Papers

F.5_Efficiency, Equity and the Role of Government_Past Papers

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