Question

Suppose you are considering two cities, city A with elastic housing supply and city B with inelastic housing supply. The two cities are otherwise exactly identical. Suppose you believe that housing demand in both cities will rise by exactly 20% over the next 3 years. Which city should have a bigger rise in house prices at the end of the 3 years holding all else constant?

Answer 1

Answer:city A

Explanation:

City A has an elastic supply meaning an higher or lesser housing supply can affect the house prices significantly. Therefore if the demand increases, supply has to increase therefore increasing the house price significantly

City B has an inelastic supply meaning lesser or higher supply does not really affect it's price significantly

Answer 2

Answer:

City B

Explanation:

The city that should have a bigger rise in house prices at the end of the 3 years holding all else constant should be City B because the house prices of CITY B will tend to rise more reason been that city B has inelastic housing supply which in turn will lead to the more inelastic city.

Therefore Suppose i believe that housing demand in both cities will rise by exactly 20% over the next 3 years CITY B should have a bigger rise in house prices at the end of the 3 years holding all else constant than CITY A