In 2008, the government initiated an $8,000 tax credit for first-time homebuyers

Question

In 2008, the government initiated an $8,000 tax credit for first-time homebuyers in an effort to stimulate the housing market. This means that all first-time homebuyers in 2008 were eligible to take an $8,000 deduction from their taxable income for that year. By offering this tax credit, the government was attempting to influence the housing market.

•How does the tax credit affect market equilibrium for homebuyers and sellers?

•In your opinion, should the first-time homebuyer credit have been increased, extended, or eliminated? Explain your position.

•What likely happened to the supply and demand curves when the tax credit was implemented?

Explanation / Answer

The tax credit means lower costs for the home buying people, so it will increase the demand for the homes and the sellers might not able to meet the demand in short run.

I will say there should be increase in credit considering the low demand levels as higher credit will result in more demand.

Supply curve was constant, the demand curve was not improved much in 2008 because of sluggish economic conditions.

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