Question

Consider the market for new homes. For each of the events listed her, identity which determinants of demand or supply are affected. Indicated also whether the demand or supply increase or decrease. Draw a graph to show the price and quantity of these new homes.

a. People decide to have more children

b. Engineers develop siding that prevents a house from burning down

c. the cost to rent existing homes decreases by $800

d. United States goes to war...

e. China issues additional tariffs on the U.S.

Answer 1

A)

When people decide to have more children, their demand for bigger and more houses increases. This shifts the demand curve of housing to the right, leading to an increase in both price and quantity of houses in the market.

B) With this new technology, houses will become more safe for living and investing money in. Thus, demand for houses will increase. Keeping supply unchanged, this leads to an increase in both price and quantity of houses in the market. Graph same as in part a

C)

A fall in the rental cost will increase demand for existing houses by tenants for renting. Thus demand for new houses would decrease. This shifts the demand curve to the left, leading to a fall in both price and quantity of new houses in the market.

D)

When US goes to war, there is a destruction of land and property and infrastructure. This leads to destruction of houses. Thus, as a result, supply of houses in the market will decrease, shifting the supply curve to the left. This leads to an increase in the price of houses and a decrease in the quantity of houses sold.

E) When china issues additional tariffs on US, it leads to a fall in demand for US goods. This makes producers and exporters left with lesser income. This reduces their purchasing power, thereby reducing their demand for new houses. Thus, demand curve of houses shifts to the left, leading to a fall in both price and quantity of houses in the market. Graph same as in part C