Economics 1001 Assignment 1 Solution

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Economics 1001 Assignment 1 Solution
ECON1001: Introduction to Economics I

Problem Set I

1. You have planned to spend 9 days in Vienna during this Christmas and New Year season. You have reserved a round-trip ticket to Vienna, which would cost you \$8000. You have also bought the ticket to Vienna Philharmonic’s New Year Concert, which cost you \$200. You have wanted to attend the New Year concert for a long time and you are willing to pay \$1000 to see it. Tickets to the concerts are nonrefundable and you cannot resell them. You just learned that all your finals would be done by Dec 15. If you leave for Vienna and come back by Christmas, the round trip tickets will cost you only \$7100. You can change the dates of your plane tickets without any fees. (So tickets cost \$8000 if you go later and \$7100 if you go earlier.) You can also change the dates of your hotel bookings without any fees. Other than price differences in plane tickets, the only consequence from going early is that you will not be able to attend the New Year concert. Given the above information, what is the surplus you get from going on the trip early?

Ans: (10 marks)

900 – 1000 = -100

2. In Hong Kong, ferries to Lamma Island are operated by Hong Kong and Kowloon Ferry Holdings Limited. Ferry fares are subject to government regulation. Suppose ferry fare without government intervention would be \$18 on weekdays, but they cost \$14.5 currently because of price ceiling imposed by the government. Is the following statement correct or not? Use no more than 3 sentences to explain.

“We can apply the model for perfectly competitive markets. The model predicts that more ferry rides will be taken if the government lifts this price ceiling because the government is currently imposing a price ceiling below equilibrium price, which causes shortage"

Ans: (10 marks)

No. According to the information given, all ferries to Lamma are operated by one company. Therefore, this is not a

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