Over the past few years there has been much concern about falling housing prices, and some policy makers have argued that the government should put a floor under prices so that they stop falling.
Suppose that in a given community, the supply and demand of housing are given by the following equations:
S= 100P - 100
D = -50P + 1400,
where S is quantity supplied (in thousands), D is quantity demanded (in thousands), and P is the price per home (in tens of thousands).
Suppose that the price is currently 15. In what direction would you expect prices to be moving?
What are the equilibrium price and quantity? How much money would be spent on housing in this community in equilibrium? (Employ your diagram to help you think about the problem, but use algebra to get your answer.)