Suppose that the demand for housing by low-income households is H A Yb pc Here b

Suppose that the demand for housing by low-income households is H ¼ A Yb pc Here b is the income elasticity of demand and c is the price elasticity of demand. Let A ¼ 0.0333, b ¼ 1, and c ¼ 0.5.

a. If Y is $15,000 and the price of housing is $100, how much housing is purchased, and what is the level of housing expenditures?

b. Now let income increase to $20,000, with all other data constant. How much housing is purchased, and what is the level of housing expenditures?

c. Assume that income returns to $15,000. What happens to housing purchased and housing expenditures if the price of housing is reduced by 30% (to $70)?