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| A question in economics...? Suppose that P is the price of houses in thousands of dollars and D _Q and S_ Q are the quantity demanded and supplied of houses, respectively, in thousands. The demand for houses is given by P = 1000 - 40(Q_D), and the supply of houses is given by (S_ P) = 40 + 80Q . (Show how all results are obtained.) a. Solve for the equilibrium price and quantity for houses. b. In order to make houses more affordable, the government removes all taxes on owner-occupied housing. These taxes currently amount to $120,000 per house. Solve for the new equilibrium price and quantity. c. Now suppose the government decides to deregulate the housing construction industry. This has the effect of halving the elasticity of supply (at all combinations of price and quantity). Starting from the solution to part (b.), calculate the new equilibrium price and quantity. d. Which policy has a greater effect on affordability? On the quantity of houses supplied? |
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| Thread | Thread Starter | Forum | Replies | Last Post |
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