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BEA111Principles of Economics 1

Assignment #1

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Question 1

Suppose there are

1000

one-bedroom apartments in a small town. Assume that supply is fixed. The table below gives information about demand.

800

600

a) What is the equilibrium rental price?

b) Suppose 200 new one-bedroom apartments are constructed. What happens to the equilibrium rent? Be sure to explain. Illustrate the change in a diagram.

c) Suppose that more people move into town, increasing the demand by 200 units at each price. What is the new equilibrium price? (assume the supply remains at 1200)

Question 2

In 2011, the Japanese became very concerned about eating potentially contaminated for following the Fukushima nuclear reactor meltdown.

a) What would this concern do to the market for Japanese produced food? Use a diagram in your explanation.

b) What would happen in the market for overseas imported food? What is the economic relationship between what happens in part a) and part b)?

Question 3

Damian likes dividing his recreational time between going to movies and reading. He has twenty hours a week available for recreation. A movie takes two hours and reading takes one hour. Damian also has a limited amount of inform to spend on recreation. He has $60 a week to spend on recreations. A movie costs $15 and magazines he likes to read cost $10 (he never reads the same magazine more than once).

a) Sketch Damian’s recreational consumption time constraint. Be sure to clearly label the diagram. What is the opportunity cost of reading a book in terms of time?

b) Sketch Damian’s recreational consumption time constraint. Be sure to clearly label the diagram. What is the opportunity cost of reading a book in terms of income?

c) What is Damian’s opportunity set (or recreational possibility set given the two constraints)?

Question 4

Suppose an underground reservoir of coal seam gas is located under properties owned by several different individuals. As each well is drilled, it reduces the amount of coal seam gas that others can extract. Compare how quickly the coal seam gas is likely to be extracted in this situation with how quickly it would be extracted if one person owned the property rights to drill for the entire seam of gas. Be sure to use the economics terms and concepts that you have learned do far in your explanations.

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