Problem Information:
Consider the market for new, singlefamily homes in New Orleans. The general demand function for new housing in New Orleans is estimated to be: Qd = 25 + -3.0P + 0.05M + 0.1R The general supply function for new housing in New Orleans is estimated to be: Qs = 100 + 3.0P + -10Pk + -4Pl where Qd is the monthly quantity demanded, P is the price per square foot of new housing in New Orleans, M is average monthly income in New Orleans, and R is the average monthly rent for a threebedroom apartment in New Orleans. Pl is the average
hourly wage rate for construction workers, and Pk is the price of capital (as measured by
the average rate of interest paid on loans to home builders). Qd and Qs are measured in units of 1,000 square feet per month.
Question 1 of 7
New housing in New Orleans is a(n) ________ (normal, inferior) good. How can you tell from
the general demand function?
Question 2 of 7
New housing and three-bedroom apartments are __________ (substitutes, complements) in
New Orleans. How can you tell from the general demand function?
Question 3 of 7
If average monthly income is $1,300 and the monthly rental rate for three-bedroom
apartments is $800, then the demand function for new housing in New Orleans is Qd =
___________.
Question 4 of 7
If the average hourly wage rate for construction workers is $12 per hour and the average
rate of interest on loans to builders is 6 percent (i.e., PK = 6), then the supply function for
new housing is Qs = ____________.
Question 5 of 7
Now, lets sssume a new supply and demand curve: Qd = 150 + -2P and Qs = -10 + 2P. Solve
mathematically for equilibrium price and quantity.
PE = $ …………… per square foot. QE = …………
square feet per month (in 1,000s). Question 6 of 7
Suppose New Orleans suffers a serious recession that causes average monthly income to
fall. If other things remain the same, what will happen to the demand for new housing?
Question 7 of 7
Suppose that the price of capital rises, causing an increase in supply. If other things remain
the same, what will happen to equilibrium quantity and price?
ScholarMatic: Explanation & Answer
Your ready answer from a verified tutor is just a click away for as little as $14.99
Click Order Now to get 100% Original Answer Customized to your instructions!
