Nanyang Technological University

HE5091 Principles of Economics

January Semester 2024
Tutorial 1

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 Economics Mathematics

0 70 60
1 77 68
2 82 74
3 85 78

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

Consider the market for online education. Due to the improvement in

education technology, it is easier for education institution to offer courses
online. At the same time, due to Covid-19 which results in movement
restrictions, there are more people wish to purse studies online. Analyse the
effects of these two incidents on the online education market with the help of
suitable market diagrams.

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.

1
(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?