Consider the effects of housing subsidies on the filtering process. Houses lose 1 unit of quality every year. Each household tolerates 10 units of quality reduction. Upgrading a house to higher quality is prohibitively expensive. The optimal quality-for-high-income-households-is 30 units, which is the quality of new houses in this economy. Imagine a subsidy program that pays 20 percent of the housing expenses of middle-income-households. The price elasticity of demand-for-housing is 1 Use the quality-ladder model and answer the following questions:
a) What is the acceptable range of quality-for the middle-income households after the subsidy?
b) Assuming the-high-income-households-do not change their-habit and move to a house at the quality 30 and only move out at quality 20. How long does the middle-income family live in the house before moving out? Why? Graph the new quality ladder.
c) Suppose the high-income family has lower willingness to pay when it comes to the house with quality-in-the-low-20s-than the middle-income. Graph the new quality ladder graph. Carefully mark the graph. Discuss and justify your answer using the housing demand and supply in the-high-income-households and middle-income households-markets.
Problem '(Chapter'14: Housing): [14 Points ] Consider the effects of housing subsidies on the filtering process. Houses lose unit of quality every year. Eachhousehold tolerates 10 units of quality reduction. Upgrading a house to higher quality is prohibitively expensive. Theoptimal quality - for high-income households is 30 units, which 'is the quality of new houses in this economy. Imagine asubsidy program that pays 20 percent of the housing expenses of middle-income households. The price elasticity of demand for housing is 1 , Use the quality-ladder model and answer the following questions. 5 a) What is the acceptable range of quality for the middle-income households after the subsidy? {2] f b) Assuming the high-income households do not change their habit and move to a house at the quality 30 -and only move out at quality 20 . How-long does the middle-income family live in the house before moving out? Why? - Graphthe new quality ladder. [4] c) - Suppose the high-income family has lower willingness to pay when it comes to the house with qquality in the -low-20s. than the middle-income. Graph the new- guality: ladder graph? Carefully mark the graph. [3] Discuss and justify your answer using the housing demand and supply in the high-income households and middle-income households markets. [6] Problem '(Chapter'14: Housing): [14 Points ] Consider the effects of housing subsidies on the filtering process. Houses lose unit of quality every year. Eachhousehold tolerates 10 units of quality reduction. Upgrading a house to higher quality is prohibitively expensive. Theoptimal quality - for high-income households is 30 units, which 'is the quality of new houses in this economy. Imagine asubsidy program that pays 20 percent of the housing expenses of middle-income households. The price elasticity of demand for housing is 1 , Use the quality-ladder model and answer the following questions. 5 a) What is the acceptable range of quality for the middle-income households after the subsidy? {2] f b) Assuming the high-income households do not change their habit and move to a house at the quality 30 -and only move out at quality 20 . How-long does the middle-income family live in the house before moving out? Why? - Graphthe new quality ladder. [4] c) - Suppose the high-income family has lower willingness to pay when it comes to the house with qquality in the -low-20s. than the middle-income. Graph the new- guality: ladder graph? Carefully mark the graph. [3] Discuss and justify your answer using the housing demand and supply in the high-income households and middle-income households markets. [6]
