Hkcee 2010 Econ Paper 2 | Q2

Stock purchases or monetary gifts do not reflect actual physical production and are excluded.

In 2010, the Hong Kong Certificate of Education Examination (HKCEE) Economics Paper 2, Question 2, focused on the concept of . Specifically, it dealt with a scenario where a person has to decide how to allocate a limited resource—time—between two competing activities.

Look at the rejected options. The one with the highest net subjective or financial value to the decision-maker represents the next best alternative. Step 3: Calculate the Initial Cost

Because the demand curve is perfectly elastic (horizontal), selling an extra unit does not require lowering the price. Therefore, . The profit-maximization condition becomes

Time spent doing an activity is a scarce resource. Always evaluate what that time could have earned elsewhere. hkcee 2010 econ paper 2 q2

Rank the unchosen options. Look specifically for the single alternative that provides the highest remaining utility or return. 4. Account for Changes in Conditions

Opportunity cost does equal the sum of all alternatives. It is strictly the single best option you gave up. In the scenario above, the opportunity cost of studying is working (valued at $100), not working plus sleeping. Step-by-Step Solution Guide

Because of scarcity, individuals must make choices, which inevitably involves an opportunity cost. Common Distractors in Paper 2

A decrease in market rent would lower the value of the forgone option, decreasing the opportunity cost. Incorrect Option (B): Decoration expenses are typically considered sunk costs Stock purchases or monetary gifts do not reflect

Negative externalities of production occur when a firm’s output imposes uncompensated costs on third parties. In the case given, the factory’s pollution harms local residents, so private marginal cost (MPC) underestimates marginal social cost (MSC = MPC + marginal external cost). The unregulated market equilibrium is where MPC equals marginal private benefit (MPB), producing Q_market which exceeds the socially optimal Q_social determined by MSC = MSB. This overproduction causes a deadweight loss equal to the triangular area between MSC and MPC from Q_social to Q_market.

This question beautifully illustrates three core principles:

Marginal Revenue (MR)=Marginal Cost (MC)Marginal Revenue (MR) equals Marginal Cost (MC)

In previous years (such as 2004), Question 2 also focused on Opportunity Cost Look at the rejected options

you could have earned by leasing it to someone else. When the market rent increases, the value of that "forgone" option rises, thus increasing your opportunity cost. Incorrect Option (A):

is not just a test of memory; it is a test of economic reasoning. It forces students to move beyond reciting definitions and into the realm of applied welfare economics. A student who can solve Q2 confidently can tackle any first-year university microeconomics problem on price controls and taxation.

Assume the question presents a scenario where a student chooses to attend an economics tutorial over a part-time shift. Suddenly, the hourly wage of the part-time shift increases.