This question typically deals with the concept of demand and supply, price elasticity, and market intervention (e.g., tax or subsidy).
Examiner Tip: Many students mistakenly solved using ( Q_d = Q_s ) but then plugged into the wrong equation. Always check that ( P ) is consistent. Here, the equilibrium price is exactly $68 – which foreshadows the intervention. hkcee 2010 econ paper 2 q2
Step 2 – Cross-price effect (substitute bus route):
The introduction of a lower-fare bus route is a substitute for MTR travel. For substitutes, a decrease in the price of the substitute (bus) reduces demand for the original good (MTR), shifting the MTR demand curve to the left. This question typically deals with the concept of
Reward for entrepreneurship (e.g., returns to the owner for taking risks). (Alternative: Interest for capital) At ceiling price P_c < P₁, quantity demanded
The question usually presents a market equilibrium and then introduces a government policy (e.g., a price ceiling below equilibrium or a production quota). It asks candidates to determine the change in Total Revenue and Consumer Surplus.