Suppose the government builds a railway in northwest New Territories.

With the aid of a diagram, explain the effect of this new railway on the total revenue of mini-buses operating on the same route. (6 marks)設政府在新界西北興建一條鐵路。

以圖輔助，解釋該新鐵路對行走相同路線的小巴的總收益有何影響。 (6分 )

The new railway service is a substitute of minibus service.

D1

P

Q

P2

Q2

P1

Q1

S

D2

So the demand for minibus service may decrease.

The total revenue decreases from P1Q1 to

P2Q2.

Suppose there is a drastic increase in sewage charges which affects the total revenue of local restaurants. With the aid of a diagram, explain the condition under which the total revenue would decrease. (8 marks)

設排污費大幅調高，因而影響本地酒家的總收益。以圖輔助，解釋在那一種情況下該總收益會下跌。 (8分 )

The sewage charges increases cost. So the supply decreases.

P

Q

P1

Q1

P2

Q2

Dnew

expenditureoriginal expenditure

S1

S2

--

++If the demand is elastic, the % increase in price is smaller than the % decrease in quantity demanded.

So the total revenue decreases.