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Market Equilibrium and the US Housing Crisis

How does the market equilibrium process play a role in the U.S. housing crisis in terms of:
- Law of demand and the determinants of demand
- Law of supply and the determinants of supply
- Efficient markets theory
- Surplus and shortage
And is there a way to graph this?

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How does the market equilibrium process play a role in the U.S. housing crisis in terms of:

Some intro points per your issues:

- Law of demand and the determinants of demand (favorable views of housing prices and low rates; expectations of rising prices (hence later profits)

- Law of supply and the determinants of supply (the issue here concerns the fact that home-buyers thought prices were increasing - so they bought NOW. There were plenty of sellers, so that's another determinant. Low rates should also be included here). Massive increase of supply artificially created by low rates. Remember here too that homes were exempted from capital gains taxes if you lived there for more than 5 years and it was your primary residence.

- Efficient markets theory (this means that information immediately has an impact on price. This suggests that housing prices went through the roof because "everyone" was saying what a good investment it is.

- Surplus and shortage (This one is easy - land regulations and high land prices forced up prices ...

Solution Summary

The solution discusses market equilibrium and the U.S. housing crisis.

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