Flooding is the most common natural disaster in Canada. The Alberta floods in 2013 is the second costliest natural disaster in Canadian history. To simplify, suppose that the floods destroyed only low-quality houses, and assume that there are only two quality levels, low and high.

a)Predict the effect of the floods on the equilibrium price of low-quality housing. Explicitly consider any changes in market filtering in your answer. Explain your answer with the aid of a graph. (20 points)

b)Predict the effect of the floods on the equilibrium price of high-quality housing.

Explain your answer with the aid of a graph. (15 points)