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DEMAND AND SUPPLY AND ELASTICITY, HELP PLEASE!!!?

September 28, 2009

It is cumbersome and long, please see if you can crack it.
In the Las Vegas metropolitan area, houses can be built quickly and easily at a cost of about $200,000 each; they just spread across the desert and are all virtually identical. But in the San Francisco metropolitan area, it takes about 5 years to get a permit to build a new house, and the mountainous topography means that as more houses get built they must be built in more and more inaccessible places
With this info, can you answer these questions.
a. Where is supply more elastic?
b. In January a popular proposal to deal with the fall in housing prices was for the federal government to raise the demand curve for houses by offering very low interest rates and refinancing opportunities; some proposals were for the federal government to pay most or all of mortgages for 10 years for home purchases. What would these proposals have done to housing prices in San Francisco? What would they have done to home construction in San Francisco?
c. What would they have done for home prices in Las Vegas?
I am sure I am asking too much, but, please give whatever you can impart with..

a) Supply in Vegas is more elastic. If people are willing to spend more, it’s easy to build more and the market will respond. But in San Francisco, the difficulty in getting permits and finding places to build means that more money won’t always mean more houses.

b) The proposals would have increased the demand for houses and raised the prices. But, as we discussed in part a, there won’t be a large increase in the number of houses built.

c) They would also have raised prices in Vegas; and in Vegas, the increase in prices would result in an increase in supply.

One Response to “DEMAND AND SUPPLY AND ELASTICITY, HELP PLEASE!!!?”

  1. Gerald B Says:

    a) Supply in Vegas is more elastic. If people are willing to spend more, it’s easy to build more and the market will respond. But in San Francisco, the difficulty in getting permits and finding places to build means that more money won’t always mean more houses.

    b) The proposals would have increased the demand for houses and raised the prices. But, as we discussed in part a, there won’t be a large increase in the number of houses built.

    c) They would also have raised prices in Vegas; and in Vegas, the increase in prices would result in an increase in supply.
    References :

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