S. Klepper, Economics 73-100, Fall 2011


Mini-test 5


In order to increase the number of new homes for sale, the government is considering building one million new homes and offering them for sale at the market price (i.e., the government is willing to sell the homes at whatever price is paid for new homes).  Suppose the government executes its plan.


Which of the following statements concerning the effects of the plan in the short run are correct?  Mark true for a correct answer and false for an incorrect one and provide explanations for each of your answers.


_____1. The market demand curve for new homes will shift to the right.


_____2. Private producers will supply less new homes at every price, causing the supply curve of new homes of private producers to shift to the left.


_____3. The price of new homes will fall.


_____4. The total quantity of new homes sold will increase by less than one million.


_____5. Private producers of new homes will sell one million less new homes.