1. Assuming that income is a determinant of housing demand, and that housing is a normal good, what can you conclude about income gains from this article?

Income gains have been stronger at higher levels of income, so demand for housing has been falling at lower income levels, and rising at higher income levels.

2. What is the value of separating the market for homes like this article has done? Shouldn’t there be just one market for housing?

If one sector of a particular market is doing better than another, it may make sense to separate the markets and describe them in different terms. That way one effect doesn’t crowd out the other in one larger aggregate market.

3. Why do you think that sales of homes in excess of $2.5 million would be doing worse than sales of homes for less than $2.5 million?

There is both a demand and a supply problem here. There aren’t that many houses that cost more than $2.5 million available nationwide, nor are there many people that can afford such a house. Consequently, there is a much more limited market. People that can afford such a home may be buying something small, and fueling the growth in the $1.2 million - $2.5 million range.

Multiple Choice/True False Questions