1.Increase in Housing Demand in Britain versus the United States. Suppose that in both Britain and the United States, the initial equilibrium price of housing is $200,000. Britain has more severe restrictions on residential development in the short run. Suppose the demand for housing increases by the same amount in the two countries.
a. Draw a set of supply and demand curves showing the effects on housing prices in the short run.
b. The price increase is larger in
because that country has a relatively
supply curve.
c. Suppose the long-run supply curves in the two countries have the same slope. Show the long-run effects of the increase in demand.
d. In the long run, Britain’s price of housing is(higher/lower/the same).
2. A constant-cost industry is one in which
do not change as output changes in the long run.
3. A constant-cost industry is more likely to arise in a market where the industry uses a (small/ large) portion of the resources available.
4. Arrow up, down, or horizontal: In a constant-cost industry, when demand increases the long-run equilibrium price
. (Related to Application 7 on page 558.)