Question

Explain how the strength of the economy as a whole affected the marginal benefits and the marginal costs associated with buying a home

Answer 1

Strength of economy as a whole affect the marginal benefits and marginal cost of buying a home. It is important for a rational individual which one is to measure the costs and benefits of buying any good which in this case is house.

For this we need to see how the economy is functioning. If the economy is growing the output and aggregate demand increasing, then it implies that demand for homes would be high . Along with that interest rates would be high and since aggregate demand is more , income would be more which would as said above increase the demand . This increased demand would lead to higher prices , which might defer the decision of individuals buying homes in case it exceeds the marginal benefit they are getting from the marginal costs.

When there exists a weak economy ie the aggregate demand is reducing, the demand for homes would also reduce. People would have less income and hence the prices of homes would be low. This can also influence the buying decisions, by having individuals to buy house at lower prices. But for that , despite the recession the individual should have enough savings etc for buying a home.

Hence the strength of economy Is necessary when buying a home.

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