(12 points-parts A, B and C) Suppose people who are thinking about buying an exi
ID: 1137180 • Letter: #
Question
(12 points-parts A, B and C) Suppose people who are thinking about buying an existing home (i.e. demanders in the housing market) and current home owners who are thinking about selling their homes (i.e. suppliers in the housing market) suddenly believe that existing home prices are likely to be significantly higher next year than this year. 6. 6A (4 pts.) Will this change in expectations cause the demand for existing homes to increase or decrease this year? Explain 6B (4 pts.) Will this change in expectations cause the supply of existing homes on the market to increase or decrease this year? Explain. 6C (4 pts.) What effect will these changes in expectations have on the price of existing homes this year? Explain.Explanation / Answer
Ans
Demand will increase because buyers will try to buy this year to speculate and sell at high prices same houses next year. Also people will demand more houses fearing they have to pay more prices next year for same house.
2 The supply will fall. This is because people will like to earn profits by selling houses at higher prices next year than selling them at lower prices this year
C prices will rise because supply falls and demand rises
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