Economics Quiz Paper
Quiz No. 2 Name ------------------------------
February 13, 2014
Section BBA-B ID No. ------------------------------
Question1 The demand for housing is often described as being highly cyclical and very sensitive to housing prices and interest rates. Given these characteristics, describe the effect of each of the following in terms of whether it would increase or decrease the quantity demanded or the demand for housing. Moreover, when price is expressed as a function of quantity, indicate whether the effect of each of the following is an upward or downward movement along a given demand curve or involves an outward or inward shift in the relevant demand curve for housing. Explain your answers.
A. An increase in housing prices
B. A fall in interest rates
C. A rise in interest rates
D. A severe economic recession
E. A robust economic expansion
Solution1 A. An increase in housing prices will decrease the quantity demanded and involve an upward movement along the housing demand curve. B. A fall in interest rates will increase the demand for housing and cause an outward shift of the housing demand curve. C. A rise in interest rates will decrease the demand for housing and cause an …show more content…
This is illustrated above as p0 and q0. A price ceiling below the initial equilibrium price will cause a shortage. That is quantity demanded (qdc) at the price ceiling (pc) exceeds quantity supplied (qsc). To avoid upsetting consumers, the company may provide a lower quality cable TV subscription. This cheaper package would increase the supply of cable TV. The supply curve will rightward. This action will move towards eliminating the cable TV shortage as the quantity supplied of the modified package
February 13, 2014
Section BBA-B ID No. ------------------------------
Question1 The demand for housing is often described as being highly cyclical and very sensitive to housing prices and interest rates. Given these characteristics, describe the effect of each of the following in terms of whether it would increase or decrease the quantity demanded or the demand for housing. Moreover, when price is expressed as a function of quantity, indicate whether the effect of each of the following is an upward or downward movement along a given demand curve or involves an outward or inward shift in the relevant demand curve for housing. Explain your answers.
A. An increase in housing prices
B. A fall in interest rates
C. A rise in interest rates
D. A severe economic recession
E. A robust economic expansion
Solution1 A. An increase in housing prices will decrease the quantity demanded and involve an upward movement along the housing demand curve. B. A fall in interest rates will increase the demand for housing and cause an outward shift of the housing demand curve. C. A rise in interest rates will decrease the demand for housing and cause an …show more content…
This is illustrated above as p0 and q0. A price ceiling below the initial equilibrium price will cause a shortage. That is quantity demanded (qdc) at the price ceiling (pc) exceeds quantity supplied (qsc). To avoid upsetting consumers, the company may provide a lower quality cable TV subscription. This cheaper package would increase the supply of cable TV. The supply curve will rightward. This action will move towards eliminating the cable TV shortage as the quantity supplied of the modified package