Reference no: EM131955771 , Length: 2

Assignment -

Having a firm understanding of the "basics" of economics can help you take a more analytical approach to understating world events around you.

In the Crain's Chicago Business article "Why Aren't More Chicagoans Putting Their Houses on the Market?", the authors note that the supply of for-sale pre-existing homes in Chicago has become relatively low. They cite several potential reasons why. Please answer the following questions regarding three of the factors listed by Crain's.

(A) - They Don't Think Prices have Risen Enough

How does the observation that sales prices have not risen high enough to "pull people [i.e., sellers] in to market" relate to the shape of the supply curve for pre-existing homes? That is, does the supply curve for existing homes appear to be relatively "flat" or relatively "steep" at the moment? Please include a graph with your answer.

(B) - They Can't Afford the Next Address They'd Like

Apparently, many sellers aren't putting their homes up for sale because, after surveying home prices across Chicago, they feel that by selling they would be sacrificing a neighborhood that they like for a less-preferred neighborhood. That is, other desirable neighborhood have become just too expensive to relocate to.

How does this observation relate to the concepts of implicit opportunity cost (discussed toward the beginning of the semester) and the height and shape of the supply curve? Please include a graph with your answer.

(C) - They Can't Complete with New Construction

Another reason that sellers are not putting their homes up for sale is that they cannot get the price that they want due to the large availability of new construction. The article notes that "there's too much inventory of new construction, and sellers [of pre-existing homes] had to lower their prices".

Assume for the moment the increase in supply of new construction has put downward pressure on the prices for newly-built homes. Use the supply-demand framework to show how this impacts the market price for pre-existing homes. Note that new construction and pre-existing homes are substitutes in consumption. Be sure to include graphs in your answer.

Attachment:- Assignment File.rar