Every year, the housing market in Monotone, Arizona, has the same experience: The demand curve for housing shifts rightward by 500 homes, 500 new homes are built, and the price of the average home doesn’t change. Using supply and demand diagrams, illustrate how each of the following new events, ceteris paribus, would affect the price of homes in Monotone over the current year, and state whether the price rises or falls.
a. Because of special tax breaks offered to Monotone home builders, 800 new housing units arebuilt during the current year.
b. Because of events in the overall economy, interest rates fall.
c. The Monotone city council passes a new zoning law that prevents any new home construction in Monotone during the year.
d. Because of the new zoning law, and the resulting change in home prices, people begin to think that homes in Monotone are a better investment than they had thought before.
e. Five hundred new homes are built in Monotone during the year. But that same year, an earthquake destroys 2,000 preexisting homes. As a result of the earthquake, 3,000 homeowners decide they no longer want to live in or own homes in Monotone.