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In 2009 and 2010 the US government instituted a program where all first-time homebuyers received an $8,000 tax credit upon the purchase of a new house. In April 2010, just prior to the credit's expiration, sales rose 7.6% and the median US home price rose 4% to from $167,000 to $174.000. Assume that all buyers received the $8,000 subsidy.

(a) Show the effects of the subsidy on a graph.
(b) Assuming that all buyers received the credit, estimate the own price elasticity of demand and own price elasticity of supply
(c) Who gained more from the subsidy, buyers or sellers?

Microeconomics, Economics

  • Category:- Microeconomics
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