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Category > Economics Posted 03 May 2017 My Price 7.00

Homework 6

Homework 6
April 24, 2017
Due on 05/02/2017, 1:00 pm. please do not submit during the lecture.
1. Assume that the parameter values in the model of housing tenure choice
are as follows: i = 0.03 (mortgage interest rate), h = 0.02 (property tax
rate), d = 0.02 (depreciation rate), g = 0.04 (housing appreciation rate),
e = 0.02 (rate of excess depreciation), = 0.35 (landlord’s tax rate).
(a) Using this information, compute ⌧ˆ, the critical consumer income-tax
rate that separates renters and owner-occupiers. Note that in this computation, you are finding the intersection point of the flat rent line and the
downward-sloping line corresponding to the owner-occupier’s cost.
(b) Suppose increases to 0.40, and compute the new ⌧ˆ. How do the
relative sizes of the renter and owner groups change? Give an intuitive
explanation for your answer, and illustrate your answer in a diagram.
(c) Suppose is back at 0.35 but that h increases to 0.03, and compute the
new . How do the relative sizes of the renter and owner groups change?
Give an intuitive explanation for your answer, and illustrate it in a diagram (note that this diagram isn’t as simple as that in (b)).
2. In the lecture, we derive the housing demand q with new approach, that
is, given p = [(1 ⌧ )(i + h) + d g] · v, q = ↵p y ✓ , answer the following
questions
(a) Which variables would affect q, and how would they affect q?
(b) If there is a general inflation, why the change in the cost is [(1
⌧ )4i 4g] · v? (c) Why does a general inflation make a non-neutral effect on housing
demand? 1

Answers

SuperTutor
(15)
Status NEW Posted 03 May 2017 02:05 AM My Price 7.00

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