3 Economy 101 questions

UNDERWOOD UNIVERSITY

PRINCIPLES OF ECONOMICS I

Quiz 2

Instructor: Dr. Kodjo, Jilou

Date_____________________ Student Name____________________________________

Exercise 1 The equilibrium rent for a one-bedroom apartment in Buckhead Atlanta $1,000 per month. Atlanta local government decides to place a price ceiling on apartments. The price ceiling it set at $800 meaning a rent of one-bedroom apartment cannot be more than $800.

a) Present the situation on the graph below by showing the equilibrium and the effect of the price ceiling on the one-bedroom market.

b) What will be the consequence of the price ceiling in this market?

Page 1 of 3

Rent

1,000

800

QE Quantity of apartments

Exercise 2 Suppose U.S. oil market is represented by the following

a) Using this demand curve on the graph, determine the revenue when the price is $18 and when the price is $16.

b) Discuss the revenue of oil when a price drop from $18 to $16?

c) Using the effect of total revenue of oil, discuss the elasticity of demand when a price drop from $18 to $16.

Page 2 of 3

160

20

24

16

18

120100 14060 80

0

40

P ri c e

Quantity�fy�ily(Th�usandsy�fyBarrelsy§erydat)

SUS

DU

SQ

P

Student Name:_________________________________

Exercise 3 Ali earns $200 a week which he spends entirely on Zaxbys salad and Orange Juice. The price for a bowl of the salad is $5 and the price for the bottle of orange juice is $2.

a) Draw Ali's budget constraint. b) Suppose the price of the salad increases to $8 per bowl, what will happen to Ali's budget

constraint? Show that on the graph

Page 3 of 3

Salad

40

35

100

30

25

20

25

10

25 50 50 Orange Juice