Suppose that the equilibrium price and quantity of new houses both increase.Which of the following could be a cause of this change?
A) The wage paid carpenters who build new houses might have risen.
B) A technological advance in framing a new house might have occurred.
C) The rent for nearby apartments might have fallen.
D) More home buyers might have moved into the area.
E) The cost of wood framing used to build houses might have fallen.

Question

Quizplus · Accepted Answer

An increase in home buyers moving into the area would increase demand for new houses, causing an increase in both price and quantity.

Option A is incorrect because an increase in the wage paid to carpenters would increase the cost of production and decrease the supply, causing price to increase and quantity to decrease, resulting in an uncertain outcome on the equilibrium.

Option B is incorrect because a technological advance would lead to a decrease in cost of production but may affect the supply curve, causing an uncertain outcome on the equilibrium.

Option C is also incorrect because a decrease in the rent of nearby apartments would lead to people buying fewer new houses and demand for new houses would decrease.

Option E is also incorrect because a decrease in the cost of wood framing would increase supply but may affect the demand curve, causing an uncertain outcome on the equilibrium.

Suppose That the Equilibrium Price and Quantity of New Houses