Nanyang Technological University

HE5091 Principles of Economics

July Semester 2022
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 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

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?