If both population and per capita income increase. Which of the following is likely to occur?Question 16Select one:a.Housing prices will stay the same since demand and supply are not affected.b.Demand for housing will increase, so housing prices will increase.c.Demand for housing will increase, so housing prices will decrease.d.The supply of housing will decrease, so housing prices will increase.e.The supply of housing will increase, so housing prices will decrease.
Question
If both population and per capita income increase. Which of the following is likely to occur?Question 16Select one:a.Housing prices will stay the same since demand and supply are not affected.b.Demand for housing will increase, so housing prices will increase.c.Demand for housing will increase, so housing prices will decrease.d.The supply of housing will decrease, so housing prices will increase.e.The supply of housing will increase, so housing prices will decrease.
Solution
The answer is b. Demand for housing will increase, so housing prices will increase.
Here's why:
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When population increases, more people need places to live. This increases the demand for housing.
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When per capita income increases, people have more money to spend. Some of this extra income will likely be spent on housing, either by upgrading to a nicer home or by entering the housing market for the first time. This also increases the demand for housing.
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When demand for a good increases and the supply remains the same, the price of that good tends to increase. This is a basic principle of economics. Therefore, if the demand for housing increases due to population and per capita income increases, we would expect the price of housing to also increase.
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