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HE9091 Jan 2021 Tutorial 1.Student Version

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Nanyang Technological University
HE9091 Principles of Economics
January Semester 2021
Tutorial 1 (Student Version)
Question 1
You are taking two courses this semester: Economics and Mathematics. You
have two examinations coming up in both classes. The table below shows your
grade on each examination for different numbers of hours spent studying for
each:
Hours of Study
0
1
2
3
Economics
70 I -17
77
-15
82 I
85 I -13
Mathematics
60
-18
68 I
74 I -16
78 I -14
Your goal is to maximize your average grade on the two quizzes. Use the idea
of optimization in differences to decide how much time you would spend
studying for each quiz if you had three hours in total to prepare for the two
exams. Note: you can only choose to study in increments of one hour.
Question 2
Explain how shifts in demand and/or supply curves could explain the
equilibrium price of houses increases but the equilibrium quantity remains
unchanged. You should consider three different situations and support your
answers with three suitable diagrams.
Question 3
The farm-breed fish industry in Singapore has been affected by two incidents.
One incident is an increasing preference of consuming farm-breed fish by
Singapore consumers. The other is the pollution in the Singapore sea which
results in many farm-breed fishes died before harvesting. Analyze the effects
of these two incidents on the farm-breed fish market in Singapore and support
your analysis with suitable farm-breed fish market diagrams.
1
Question 4
The market for rice in a small country has the following demand and supply
functions:
Demand function:
P = 6 – 0.5QD
Supply function:
P = 2 + 0.5QS
Where QD is the quantity demanded, QS is the quantity supplied and P is the
unit price of rice.
(a)
Determine the equilibrium price and quantity in the rice market.
Support your answers with a suitable market diagram.
(b)
Since rice is the staple good in the country, the government decides to
impose a price ceiling of rice at $2.50 per unit to help consumers. At this
price, determine the quantity of rice consumed and produced. What is the
maximum price that consumers are willing to pay in this situation?
(c)
To increase the income of rice farmers, the government implement a
price floor policy (legal minimum price) of rice at $5.50 per unit. Determine
the quantity of rice consumed and produced. Will this policy increase the
earning of the famers?
2
1.
marginal benefit inoreaseintotalbenefittromohe additional unit of an activity
:
with thegoalofmax.avggradeonzqui22.es , the best
2 hours
That would gihemedhavgscoheof 75.5
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2nd
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basis of the cost ( Ihf )
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If demand
^
200K
150K
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o
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S,
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D
n
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,
demand a supply curves move in the same direction , then the change in
equilibrium price can be determined but equilibrium qty is dependent ohthe
relative change
p,
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It
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p,
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price
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-
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n
never reacts -10
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>
orviccrersa
3
.
,
asking price by the sellers driving the
price up
•
i.
accept a cheaper price
price falls
(2) increase
'm supply , decrease in supply
houses
-
50K
houses , sellers
,
^
150K
,
hicerersaforcz ,
o
S1
$1 kg
←
n
12
10
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s
¢
increasing preference of farm bredfishnill
-
increase the demand
-
(2) sea pollution will caus @ adropihsupply
Thepricelkgotfarm
-
-
bredfishhillincreaseduetothe
supply offish yet having an increasing
demand However the equilibrium quantity cannot be
smaller
•
8
.
-
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determined astherelatineshiftofeachoftheaeme
p,
hill determined tailor increase
D
-
o
.
decreases'h demand increased supply : consumers place alowervalyeohthe
a)
•
I
-
200K
'm
asupplychangesinopp directions then the change
equilibrium price can be determined but equilibrium price cannot be
determined astheeftectohoutpytdependsohth@ relative change otthez
s
-
-
50K
is
constant
:
$
.
istostudytortconstoranhourimathtor
.
l
l
l
l
2
4
6
8
>
qty offish
cinkg )
* illustrations don't need to
be accurate Molteno points
-
cdhjustdrdw roughly
.
1.
OSYPPIY
2.0
3.
> 0
demand
ftp.plycodomahd
osilpply
-
O
demand
.
4. (a) equilibrium price
$4
-
-
qty
,
-_
Qs
if QD
p: 6
4
price 1kg
41
-
.
•
5-
3
-
2
÷! !
-
-
a
l
D
=
/
i
-
-
a
4
°
l
l
I
2
3
14 I to
l
7
> qty of rice
( kg )
-
5
V
-
s
2
-
l
.
-
-
0
-
I
x. ,
5
price floor
{
f-
-
.
•
-
-
i
-
.
This will create
xp
D
I
l
1
2
l
34
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5
to
l
7
Xp
/
D
I
,
l
l
l
I
2
3
l
4 15 to
.
7
7 qty of rice
( kg )
Demand is att
QD
supply a-11kg
.sn the market
shortage
=
6kg
> atyofrice
ekg ,
=
surplus office
-
,
QD
@ E
=
=
mention this
consumers are
$16
→
@ Price
floor
-
-
=
55×1
$5.50
discouragedfrom
purchasing at such
d
highprice
willing to absorb the
surplus thehitis possible to implement
a
*
to
help
high floor
want to help the suppliers you 'd implement a price floor then n'cetera
the consumers
hhcnyoi
.
surplus of 6kg
4X4
if govt is
1kg
.
revenue tiers
•
'
a
×g=ykk9g
.
i
-
°
"s
•
•
.
.
I
21
I
rpriceceilihg
.
'
Xs
.
.
.
other hand supply I produce more in order -10 earn more
.
.
-
i
.
with the price floor above the equilibrium price consumers are
not willing to pay that much A demand falls Suppliers on the
price 1kg
G
.
.
price ceiling of 2.50 is lower than the
equilibrium price which means demand exceeds
=
^
-
.
The
Xs
as
-
.
qty supplied
"'
•
-
V
Qb
.
.
-
S
.
.
-
4
'
l
-1
G
514 )
p= 2+0.514 )
•
•
O
=4
it
I
•
-
I
=
.
.
-
S
Qs
price 1kg
4
=
-
n
G
Cb)
4kg
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