When considering a competitive market for apartments in a city. What would be the effect on the equilibrium price and output after the following changes (other things being held constant):?
a) A rise in the income of consumers.
b) A new construction technique allowing apartments to be built at half the cost.
a) A rise in the income of consumers.
b) A new construction technique allowing apartments to be built at half the cost.
1 Answer
Refer Explanation Section
Explanation:
The market is competitive.
Other things remain unchanged.
a) A rise in the income of consumers.
To begin with the demand for and supply of houses determine the equilibrium price and number of houses.
After an increase in the income of the consumers, The demand curve is shifted to right. The new demand curve is
The new equilibrium Price is
The new equilibrium number of houses is
The Net result is a rise in price and number of houses.
b) A new construction technique allowing apartments to be built at half the cost.
The initial equilibrium is at point
With an improvement in technology, the supply curve will be shifted to right. The New supply curve is
The new equilibrium point is
The new equilibrium price is
The new equilibrium number of houses is
The net result is a decrease in price and an increase in number of houses.