Economics Assignment

For the Writing Assignment, you need to read the article: "Housing Market is Waking up to a New Hangover" by Diana Olick, published on October 2014 by USA Today. The article can be downloaded from the following link: http://www.usatoday.com/story/money/business/2014/10/26/cnbc-housing-hangover/17772977/

The article illustrates a number of economic concepts we have discussed in class. You should write a short narrative essay that analyzes the article using the tools developed in class. Below is a guideline on how the essay should be structured:

Format

1. The essay should NOT exceed 3-double spaced pages, including graphs. Shorter essays are welcomed.

2. Use 12 point font, and 1-inch margins.

3. A SEPARATE cover page (in addition to the 3-pages) should be provided. The cover page should have your name, semester, and class section. DO NOT include your name on the remaining pages.

4. You DO NOT need a "reference" page unless you use resources outside this article. This is not a research essay so the above article should be your primary source, but you may choose to reference your text, lecture notes, or other articles. If so, you need to cite the references at the end of your essay.

5. STAPLE your essay. DO NOT bind the pages or place them in folders, etc.

6. I deduct points if these rules are not followed. Details are important!!

Content

Your essay SHOULD address ALL points/questions below and include 3 graphs

1. In the first paragraph introduce your essay, say what you are going to discuss, and reference the article.

2. In the following separate paragraph(s) summarize the main points of the article.

3. In one passage the article reads: "Investors, desperate for yield and fueled by Fed-induced cheap cash, swarmed the most distressed housing markets, buying bargain-basement properties and turning them into rentals." Discuss this passage by addressing the following points and provide an analysis (in an essay form):

a. Using an S-D graph (on a market for housing), show how "investors buying properties" impact the housing market. Does any of the curves (Demand or Supply for homes) shift in this case? Why? Please explain clearly.

b. What happens to equilibrium price and quantity of homes when "investors buy properties"? Why?

c. What happens to consumer and producer surplus in the housing market when "investors buy properties"? Explain why. Be specific.

4. In another passage the article reads: "Foreclosures have fallen to new lows since the crisis..." Discuss this passage by addressing the following points and provide an analysis (in an essay form):

a. Using an S-D graph (on a market for housing), show how a decline in foreclosures has impacted the housing market. Does any of the curves (Demand or Supply for homes) shift (because foreclosures decline)? Why? Please explain clearly.

b. What happens to equilibrium price and quantity of homes due to the decline in foreclosures. Why?

c. What happens to consumer and producer surplus in the housing market because of "a decline in foreclosures"? Explain why. Be specific.

5. In another passage the article reads: "Prices soared again between 2011 and 2013 due to the Federal Reserve's intervention; it bought billions of dollars worth of mortgage-backed bonds and pushed the average rate on the 30-year fixed to a record low." Discuss this passage by addressing the following points and provide an analysis (in an essay form):

a. Using an S-D graph (on a market for housing), show how Federal Reserve policy to buy mortgage-backed securities (which lowers mortgage rates) impacts the housing market. Does any of the curves (Demand or Supply for homes) shift? Why? Please explain clearly.

b. What happens to equilibrium price and quantity of homes because of the Federal Reserve policy? Why?

c. What happens to consumer and producer surplus in the housing market because of Federal Reserve policy? Explain why. Be specific.

6. Based on your understanding of elasticity, which of the market do you think has a higher elasticity of demand: buying a house/apartment or renting a house/apartment? Provide a brief explanation on your essay (a short paragraph will suffice).

7. Write your conclusions in one last paragraph.