Which of the following would be likely to reduce (shift to the left) the demand for...

Which of the following would be likely to reduce (shift to the left) the demand for residential housing? Explain very briefly (a line or two for each item) why your answer is correct and why the remaining answers are not. (a) High prices for residential housing units. (b) High mortgage interest rates, i.e. high cost of credit for purchases of residential housing. (c) High prices for lumber and other construction materials. (d) Low unemployment rates. (e) Low prices for residential housing units.

Solutions

Expert Solution

Solution: (b) High mortgage rate

Explanation:

(a) & (e) High and Low prices for residential housing units: Change in prices of residential unit will change the quantity demanded i.e. there will be movement along the demand curve. Higher the price lower the quantity demanded and vice-versa.

(c) High prices of construction materials: It will directly affect the supply of residential housing units. i.e. this will not have any direct effect on demand of residential housing units.

(d) Low unemployment rate: Implies that employment rate in the economy is high. this will generate income and hence overall income of the economy will increase. This will lead to the right ward shift of the residential housing demand curve.

(b) High mortgage rate: By having high cost of credit will have its effect on each quantity demanded. i.e. cost of credit has inverse relation with quantity demanded. This willl lead to shift the demand curve to the left.

Rahul Sunny answered 1 year ago

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