Study the following two graphs used in the construction industry of the housing
ID: 1144130 • Letter: S
Question
Study the following two graphs used in the construction industry of the housing market. They show the supply and demand of new homes. After reading the graphs carefully, discuss the following questions.
Graph 1:
A) What are the possible reasons for a shift in demand curve to the right?
B) What is the impact on the equilibrium price and equilibrium quantity?
Graph 2:
A) What are possible reasons for a shift in the supply curve to the left in the new housing market?
B) What is the impact on the equilibrium price and the quantity?
PA D1 D2 P1 Q1 Q2Explanation / Answer
Graph 1:
A) Demand curve for new houses shifts right due to various reasons:
a) Income of people increases and people treat new house as normal good.
b) People have favrourable taste and preference for the house.
c) Rent of house increases in the market. When rent increases then people are more willing to buy house.
B) It causes increase in equilibrium price and quantity.
Graph 2:
A) Causes of leftward shift of supply curve:
a) Price of bricks and other raw materials used in the production of houses increases.
b) Sellers expects that price of house will increase in near future.
B) Equilibrium price increases while equilibrium quantity decreases.