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Two students are debating the effects of an expected decline in future home prices. Student 1 claims that a decline in home prices will increase
Two students are debating the effects of an expected decline in future home prices. Student 1 claims that a decline in home prices will increase the total quantity of homes bought and sold while student 2 claims that the quantity of homes bought and sold will decline. a. Which student is correct? Without knowing the magnitude of the shifts, we cannot tell whether equilibrium quantity increases or decreases. No one is correct. Student 2 is correct. Student 1 is correct. b. What do we know will happen without ambiguity? Equilibrium quantity will increase. Equilibrium price will decrease. Demand will increase once expectations are announced. Supply will decrease once expectations are announced. c. On the graph, demonstrate one of the possible outcomes of an expected decline in future home prices. Assume equal shifts in curves
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