Exercise Set 1
GRAPHS


I. Objectives

  1. To obtain the slope and intercepts of a line (or curve)
  2. To see what causes a movement along a curve
  3. To see what causes a shift of the curve
  4. Importance of the ceteris paribus assumption

II. Data


III. Questions

  1. Select values for the parameters: a = 5000, b = 200.
  2. Sketch the relationship between home sales and the interest rate. Plot R on the horizontal axis. Obtain the intercepts and slope. Indicate them on the graph.
  3. Explain the relevance of the ceteris paribus assumption in this case.
  4. The value of the slope indicates that if the interest rate rises by 1 percent, ceteris paribus, the number of new homes will _____________ (insert increase or decrease) by _________ units.
  5. Suppose the interest rate is 8%. At this interest rate, the number of new homes bought is __________.
  6. If the interest rate rises from 8% to 12%, ceteris paribus, the number of new homes bought will decrease from _______ to ________. Indicate the relevant points on the graph.
  7. The change in R in the preceding question results in a [movement along the curve / shift of the curve]. Explain.
  8. Suppose consumers' incomes rise. How is this likely to affect the graph in Question 2?
  9. Increase the value of a by 10%. The new value of a is _________. Sketch the new curve, indicating its intercepts and slope.
  10. Go back to your initial values for a and b. Suppose you had sketched the graph with R on the vertical axis. Obtain the two intercepts and the slope. Compare these with your findings in Question 2.

Video solution: https://use.vg/javF9t