Suggested Solutions to S6 Economics Supplementary Exercises

Table of Contents

S6 Economics Ex. Topic: Property Rights and Transaction costs 1

S6 Economics Revision Ex: Market Failure 2

S6 Econ Rev. Ex. (21st May, 2008) 3

S6 Econ Rev. Ex. (23rd May, 2008) 4-5

S6 Econ. Rev. Ex. IV 6-7

S6 Econ. Rev. Ex. V 8-9

S6 Econ. Rev. Ex. VI [UPDATED] 10

S6 Econ. Rev. Ex. VII [UPDATED] 11
S6 Economics Ex. Topic: Property Rights and Transaction costs
1. Columnists are often paid by piece rates instead of time rates or royalties. Explain why.
2. “A firm exists only when there is an employer-employee relationship.” Do you agree? Explain.
3. “Exclusive income from private property will be suppressed if the right to transfer is to a certain
extent attenuated.” Do you agree? Explain.
4. Why does price dispersion arise and persist identical products? Will an individual always buy from
the seller who sellers at the lowest price? Explain.

Suggested Answers

1
S6 Economics Revision Ex: Market Failure
1. What is Coase Theorem?
2. Radio broadcast is a public good. What are the problems in its pricing? What are the ways to
overcome the problems so that it can be provided privately? Is the situation efficient?
3. “To achieve consumption efficiency, a private good should be consumed by the individual with the
highest MUV, while a public good should be consumed by all individuals with positive MUVs.”
Comment.
4. “The existence of deadweight loss implies inefficiency.” Comment.
5. Before 1991, there were two routes that drivers might take to travel from Shatin to Kowloon: the Lion
Rock Tunnel and the Tai Po Road. Suggest how drivers determined which route to use.

Suggested Answers

2
S6 Econ. Rev. Ex. (21st May, 2008)
1. Distinguish among the following terms: free good, land (gift of nature), and common property.
2. “Tax is by nature inefficient.” Do you agree? Explain your answer.
3. A city has imposed rent control on residential housing for many years. The new city government then
relaxes the control. Rents shoot up but the quantity of rented flats increases. Is it contradictory to the
law of demand? Explain your answer with the aid of a diagram.

Suggested Answers

3
S6 Econ Rev. Ex. (23rd May, 2008)
1. (B1, HKAL 2002)
2. (C8, HKAL 2001)
3. (C7, HKAL 1998)

Suggested Answers

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S6 Econ. Rev. Ex. IV
1. (B1, HKAL 2006)
2. (B2, HKAL 2006)
3. (B3, HKAL 2006)
4. (B4, HKAL 2006)

Suggested Answers

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S6 Econ. Rev. Ex. V
1. (B3, HKAL 2007)
2. (B6, HKAL 2007)
3. (B1, HKAL 2007)
4. (B2, HKAL 2007)

Suggested Answers

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S6 Econ. Rev. Ex. VI
1(a)-1(c). (C7, HKAL 2007)

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S6 Econ. Rev. Ex. VII
1. (C8, HKAL 2006)
2. (C8(b), HKAL 2005)
3. (C8(c), HKAL 2005)

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