INSTRUCTOR DISCUSSION NOTES:
Housing bubbles: all about supply and demand

1. On a graph of supply/demand, show the impact of an increase in demand in a market where supply is fixed in the very short run.

As demand increases, equilibrium quantity does not change, and price increases by the full amount of the increase in demand.

2. On a graph of supply/demand, show the impact of easing zoning restrictions in a market with fixed supply.

Supply should rise, (shift to the right), while demand remains fixed.

3. Is supply of housing elastic or inelastic here? Why?

According to this argument, supply is perfectly inelastic (in the short run), because it is fixed in supply here.

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