Question

Using the normal graphs of basic micro-economics, please trace through the expected relative price and employment impacts of a single family detached housing subsidy to the poor in the markets for:
 
 Single family detached Homes,
 Carpenters,
 Glass,
 iPods,
 Beer,
 Purchases of restaurant meals by the rich.
 First-class air tickets from San Francisco to Paris
 The Audi R8 (This is a cool sports car on a Formula One racing frame.)

Answer 1

Topic: Circular Flow Model; Law of Demand

1. Discuss, in detail, the Circular Flow Model (i.e., how it works). Be sure to include in your analysis an overview of the markets involved.   

2. Below is the demand schedule for single-family homes.

PRICE OF

SINGLE-FAMILY HOMES

QUANTITY OF

SINGLE-FAMILY HOMES

PURCHASED

(in thousands)

(in thousands)

200

10

180

20

160

30

140

40

120

50

100

60

Using the schedule above, draw the demand curve for single-family homes. Make sure to label your diagram.

Note: You will use this demand curve to answer questions 3 through 6 below.

3. Demonstrate, AND EXPLAIN, how an increase in the price of single-family homes from $120,000 to $180,000 will impact the demand for single-family homes.

4. Demonstrate, and explain, how an increase in incomes will impact the demand for single-family homes.

5. Consumers anticipate that mortgage interest rates will increase 25% within the next 18 months. Demonstrate, and explain, how this will impact the current demand for single-family homes.

6. Consumers decide that renting is a poor investment. (LIFE LESSON: Being a homeowner actually sucks—but they do not know this yet.)

(a) Demonstrate, and explain, how this will impact the demand for single-family homes.

(b) Demonstrate, AND EXPLAIN, how this will impact the demand for hardwood flooring. HINT: Don’t use your demand curve from question 2