HKDSE Economics common mistakes
HKDSE Economics · Understand the traps and how to avoid them.
When a demand curve shifts, the candidate reads the new equilibrium price off the original demand curve or the original price off the new demand curve, producing a price–quantity pair that lies on neither curve.
The candidate draws the shift but then traces a horizontal or vertical line from the old equilibrium to the new supply curve, confusing the movement along a curve with the shift of a curve. This happens because the mechanics of shifting are memorised, but the candidate has not internalised that the new equilibrium must satisfy both the new demand and the existing supply simultaneously.
What to do instead
After drawing the shifted curve, physically mark the new intersection point and read both coordinates from that single point. Practise with a checklist: (1) identify which curve shifts and in which direction; (2) draw the new curve; (3) mark the new intersection; (4) state the new price and quantity by reading across to both axes from that same point. Do ten quick drills with different shift scenarios until the habit is automatic.
The candidate treats a price ceiling or price floor as automatically binding and concludes there is a shortage or surplus, without comparing the controlled price to the equilibrium price.
Textbook diagrams usually show binding controls, so candidates pattern-match the diagram shape rather than applying the condition. They also confuse the direction: a ceiling above equilibrium has no effect, and a floor below equilibrium has no effect, but candidates often assume any control creates a gap.
What to do instead
Before analysing any control, write the equilibrium price first, then compare: for a ceiling, binding only if set below equilibrium; for a floor, binding only if set above equilibrium. If non-binding, state explicitly 'no effect on price or quantity'. Then, if binding, calculate the quantity demanded and quantity supplied at the controlled price and state the size of the shortage or surplus. Drill with mixed cases, including non-binding ones.
The candidate labels a change in quantity demanded as a change in demand (or vice versa) when explaining the effect of a price change versus a non-price factor.
The terms sound similar and candidates often use them interchangeably in essays. They may also fail to distinguish between a movement along the curve (caused by the good's own price) and a shift of the curve (caused by income, tastes, prices of related goods, expectations, number of buyers).
What to do instead
Adopt a strict vocabulary rule: 'change in quantity demanded' only for own-price changes, shown as a movement along the curve; 'change in demand' only for non-price factors, shown as a shift. In every answer, explicitly name the cause and then state which term applies. Practise by classifying a list of scenarios (e.g., income rises, price of substitute falls, own price falls) into movement versus shift before drawing anything.
The candidate calculates price elasticity of demand using the simple percentage change formula without recognising that the result differs depending on the direction of the price change, and then misclassifies the good as elastic or inelastic.
The simple formula (ΔQ/Q ÷ ΔP/P) gives different elasticity values for a price rise versus a price fall over the same range because the base quantity and price differ. Candidates often compute only one direction and assume it is the elasticity, leading to inconsistent conclusions, especially near the midpoint of a linear demand curve.
What to do instead
Use the midpoint (arc) formula for any change over a range: elasticity = (ΔQ / average Q) ÷ (ΔP / average P). State clearly that elasticity varies along a linear demand curve and that the midpoint formula gives the elasticity over the interval. For point elasticity, use the formula with the initial values only when the change is infinitesimal. Always interpret the absolute value and state elastic, inelastic, or unit elastic with reference to the calculated number.
The candidate draws a firm's cost and revenue curves without ensuring that the marginal cost curve intersects the average total cost curve at the latter's minimum point, or draws marginal revenue above demand under monopoly.
Candidates memorise the shapes but not the mathematical relationships. They may place the MC–ATC intersection at an arbitrary point, or draw MR and AR as parallel lines, missing that MR lies below AR for a downward-sloping demand curve and that MR = 0 at the quantity where total revenue is maximised.
What to do instead
Learn the geometric rules: MC cuts ATC and AVC at their minimum points; for a linear demand curve, MR has the same intercept and twice the slope; MR = 0 at the midpoint of the linear demand curve. Before drawing, sketch the demand curve, then construct MR using the doubling rule, then place MC so that it cuts ATC at ATC's minimum. Verify by checking that profit-maximising output is where MR = MC and that price is read off the demand curve at that quantity.
The candidate explains GDP changes by summing up all expenditure without distinguishing between nominal and real GDP, or without excluding transfer payments and intermediate goods.
The expenditure approach is taught as C + I + G + (X − M), and candidates mechanically add any spending they see. They forget that transfer payments are not payments for currently produced goods and services, that intermediate goods are already counted in final goods, and that nominal GDP can rise purely from inflation.
What to do instead
Build a checklist for each component: C includes household spending on final goods and services but not purchases of second-hand goods or financial assets; I includes gross fixed capital formation and changes in inventories but not purely financial transactions; G includes government consumption and investment but not transfer payments; X − M includes only exports and imports of goods and services. For real versus nominal, always state which price base is used and adjust with a price index when comparing across years.
The candidate treats a rise in the unemployment rate as necessarily bad or as always caused by a fall in employment, without checking whether the labour force changed, and without distinguishing between frictional, structural, and cyclical unemployment.
Candidates conflate the unemployment rate with the employment level. They may not realise that the unemployment rate can rise even when employment rises if the labour force grows faster, or that a fall in the participation rate can reduce the unemployment rate while the economy is weakening. They also fail to link each type of unemployment to its cause and policy response.
What to do instead
Always write the formula: unemployment rate = unemployed ÷ labour force × 100%. Before interpreting any change, state what happened to the numerator and denominator separately. Classify each scenario by type: frictional (short-term search), structural (skills or geographic mismatch), cyclical (deficient aggregate demand). Then match the policy: job-matching services for frictional, retraining for structural, demand stimulus for cyclical. Practise with data sets where employment and labour force move in opposite directions.
The candidate assumes that an increase in the money supply always lowers the interest rate and raises output, ignoring liquidity trap conditions, the shape of the money demand curve, and the possibility that investment is interest-inelastic.
The transmission mechanism is taught as a simple chain: money supply up → interest rate down → investment up → output up. Candidates memorise the chain without the conditions under which each link may fail. They may not consider that if money demand is perfectly elastic (liquidity trap), extra money is held idle, or that if investment is insensitive to interest rates, the effect on output is weak.
What to do instead
Learn the transmission chain with explicit conditions at each link: (1) money supply increase lowers interest rate only if money demand is not perfectly elastic and the money supply curve shifts along a downward-sloping money demand curve; (2) lower interest rate raises investment only if investment is interest-elastic; (3) higher investment raises output through the multiplier, which depends on the marginal propensity to consume. In essay answers, state the assumptions and then explain what happens if they fail. Use diagrams of the money market and the investment demand curve to show the conditions.
The candidate evaluates a policy by listing advantages and disadvantages without applying them to the specific scenario, and without considering trade-offs, time lags, or the difference between short-run and long-run effects.
Candidates often memorise generic pros and cons of fiscal or monetary policy and reproduce them regardless of the question. They may not link the evaluation to the given economic conditions (e.g., recession versus inflation, open versus closed economy, fixed versus floating exchange rate) or to the magnitude and timing of the policy.
What to do instead
Structure evaluation answers around criteria: effectiveness (does it address the cause?), efficiency (cost versus benefit), equity (who bears the burden?), and feasibility (time lags, political constraints, crowding out). For each policy, state the condition under which it works best and the condition under which it fails. Use the specific scenario details in the question to judge which condition applies. Practise by writing one-paragraph evaluations that explicitly weigh two policies against each other for a given scenario.
The candidate defines terms loosely or uses everyday meanings in definitions, such as defining 'opportunity cost' as 'the money cost' or 'inflation' as 'prices going up' without specifying a sustained increase in the general price level.
Candidates rely on everyday language and do not learn precise exam definitions. They may lose marks on definition questions even when they understand the concept, and loose definitions then contaminate the rest of the answer, leading to imprecise analysis and evaluation.
What to do instead
Maintain a personal glossary of precise definitions for every key term in the syllabus, written in full sentences and checked against the textbook. For each term, also note a counter-example (e.g., opportunity cost is not always money; inflation is not a one-off price rise). Before writing any answer, spend thirty seconds recalling the exact definition and write it out first. In practice essays, underline the key term and ensure the definition used is consistent throughout.