A. Basic Economic Concepts:

• Scarcity, choice, and opportunity cost as the source of economic problems
• The three basic economic problems: what to produce, how to produce, and for whom to produce
• How society tackles economic problems through customs, government decisions, and market mechanisms
• Private property rights and their importance in a market economy
• Specialization, exchange, and the circular flow of economic activities
• Positive and normative statements

B. Firms and Production:

• Forms of ownership: public and private ownership
• Limited and unlimited liability, shares and bonds as sources of capital
• Objectives of firms: profit maximization, market share, provision of non-profit services, corporate social responsibility, etc.

C. Market and Price:

• Law of demand and factors affecting individual and market demand
• Law of supply and factors affecting individual and market supply
• Equilibrium and the interaction between demand, supply, and price
• Consumer and producer surplus
• Functions of prices
• Price elasticity of demand and supply
• Market intervention: price ceiling, price floor, quota, unit tax, and subsidy

D. Competition and Market Structure:

• Perfect competition and imperfect competition: monopolistic competition, oligopoly, and monopoly
• Features of markets: number of sellers and buyers, nature of product, ease of entry, availability of information, price taker/price searcher
• Sources of monopoly power

E. Efficiency, Equity and the Role of Government:

• Conditions for efficiency: maximization of total social surplus; marginal benefit equals marginal cost
• Deviations from efficiency: price ceiling, price floor, tax, subsidy, and quota
• Divergence between private and social costs (benefits): market versus government solutions

F. Measurement of Economic Performance:

• National income as a general term for aggregates like Gross Domestic Product (GDP) and Gross National Income (GNI)
• Gross Domestic Product (GDP): three approaches to measure GDP, nominal and real GDP, GDP at factor cost, per capita GDP, and growth rate of GDP
• GNI as GDP plus net income from abroad
• Uses and limitations of national income statistics as an indicator of economic welfare and for international comparison

G. National Income Determination and Price Level:

• Aggregate demand (AD): reasons for a downward-sloping AD curve and determinants of aggregate demand
• Aggregate supply (AS): reason for an upward-sloping short-run AS curve, reasons for a vertical long-run AS curve, and factors affecting short-run and long-run AS
• Determination of the equilibrium level of output and price level in the AS-AD model
• Changes in the equilibrium level of output and price level caused by change(s) in the AD and/or AS

H. Money and Banking:

• Money: definition, nature, and functions
• Banks: functions and services
• Money supply: definitions of money supply in Hong Kong, credit creation/contraction, and the banking multiplier
• Money demand: meaning of transactions demand for money and asset demand for money, and money demand as a function of nominal interest rate and income
• Determination of interest rate in the money market
• Hong Kong as a financial centre

I. Macroeconomic Problems and Policies:

• Business cycles: a description of the short-run fluctuations in real GDP around the long-run trend

J. International Trade and Finance:

• Free trade and trade barriers: absolute advantage, comparative advantage, and gains from trade, types of trade barriers, effects of tariff and quota on price and output for a small open economy, and trade barriers faced by Hong Kong
• Brief introduction to the balance of payments account
• Exchange rate: meaning of exchange rate