. Each of the following changes can be expected to have an effect on the market
ID: 1138917 • Letter: #
Question
. Each of the following changes can be expected to have an effect on the market for newly built houses. Predict which curve will shift (supply or demand), and predict the direction (right or left). a. The price of lumber goes down. Curve: b. There is a decrease in interest rates. You may assume that most people borrow most of the money Direction that is necessary to buy new homes. Curve Direction: c. The number of new households being established (i.e., population of young people) declines. Curve: Direction: d. New regulations on land development reduce the amount of land available for new home construction because of wetlands and green-space preservations. Curve: DirectionExplanation / Answer
1) When rice of lumber which is used as an input in making houses goes down, it implies that cost of production falls and profit opportunity for supplier of house goes up, and so when price of lumber down it implies supply curve of houses shifts rightwards
2) If there is a decrease in interest rates then loans become cheaper and more people will be willing to take home loans, hence it will result in a rightward shift of the demand curve.
3) When population of young people declines then the market demand for new houses shrinks and so the demand curve shifts leftwards.
4) New regulations reduce the land available for building houses and hence decrease the supply of a major input used in building houses and this will result in leftward shift of the supply curve.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.