Purchase Solution

Market Equilibrium and the US Housing Crisis

Not what you're looking for?

Ask Custom Question

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?

Purchase this Solution
Solution Summary

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

Solution Preview

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 ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

View More Free Quizzes
Related BrainMass Solutions

  • Demand determinants and Supply determinants

    This resulted in a massive increase in the number of houses supplied. I would argue that the housing market is in equilibrium.

  • 2008 U.S. economic financial crisis: sub-prime loans

    527980 2008 U.S. economic financial crisis caused by sub-prime loans Please help me answer these questions about the economic recession and the housing crisis. 1. How did the housing market affect the 2008 economic recession? 2.

  • Financial Crisis - Subprime - 2007-2009

    The collapse of the American housing markets was among the biggest blows to the country during 2006 and 2007. In 2006, the US housing market was flourishing and the general public was given an easier way to buy a house with simpler loans.

  • economic theory

    The current equilibrium shown as RG in the figure is also accompanied by an unemployment rate above the natural rate of unemployment, and this is what has been pointed above. More than 15 million people in the US are out of jobs.

  • Federal intervention in current mortgage and housing crisis

    240573 Federal Intervention in Current Mortgage and Housing Crisis 1. Discuss the current mortgage and housing crisis in U.S. Discuss the need for federal government interventions in these crisis.

  • Lessons learned from the recent Global Crisis

    The collapse of the real estate market in 2006 was the close point of origin of the crisis. The failure rates of subprime mortgages were the first symptom of a credit boom tuned to bust and of a real estate shock.

  • Housing Bubble & Financial Crisis

    http://bonddad.blogspot.com/2012/07/bens-testimony-beige-book-and-consumer.html http://www.realtytrac.com/content/foreclosure-market-report/us-foreclosure-market-report-january-2013-7596 http://www.investopedia.com/articles/07/subprime-blame.asp

  • AD-AS diagram

    This will shift the short-run AS curve to the left, and the short-run equilibrium will shift to the left with lower equilibrium output (real GDP) and higher price level. Shock 2: A bubble in the housing market that bursts.

  • Global Economic Crisis?

    The Onset of the Crisis The first signs of trouble were in the US mortgage market. Lending standards had eased so far ?and outright fraud had gotten to be such a problem ?

View More Related Solutions