Ans 1. Option c
The increase in mortgage interest rate increases the cost if owning the house. This leads to a decrease in demand for houses shifting the demand curve for houses to the left.
Ans 2. Option b
Equilibrium in the market is where,
Qd = Qs
=> 20 - P = 6+P
=> P = $7
As market clearing price, $7, is less than the price ceiling of $8. So, price ceiling is non-binding and hence, has no impact on the market.
Ans 3. Option C
Law of diminishing marginal utility states taht as more of one
good is consumed then the utility from each additional unit
Ans 4. Option b
Price elasticity of demand = Change in Quantity demanded due to change in price.
So, price elasticity of demand of -2 means that demand increases by 2 unit for 1 units decrease in price level.
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