Answered: you have $400,000 to spend on a house…

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter7: Consumer Choice: Maximizing Utility And Behavioral Economics

Section: Chapter Questions

Problem 10QP

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(PLEASE READ THE QUESTION!!) someone has been copying and pasting the wrong answers on my questions. Suppose you have $400,000 to spend on a house and "other goods." The price of 1 square foot of housing is $100 and you choose to purchase your optimally sized house at 2000 square feet. Call this house A. After you bought the house, the price of housing falls to $50 per square foot. a. Call the new house you would buy given your new budget set house B. (Illustrate your answer on a graph showing your budget set before you bought the house as well as the budget set after you bought house A and the price fell. Put "square feet of housing" on the horizontal axis and "$ of other consumption" on the vertical axis.) Is house B smaller than house A? Does your answer depend on whether the good is normal, regular inferior or Giffen? b. Suppose that the price had fallen before you purchased the original house. Call the house you would have bought house C. Is house C larger than house B? Larger than house A? Does your answer depend on whether housing is normal, inferior or Giffen? Carefully justify your answer.

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