A New House Economy Week 7 XECO 212

A New House Economy Week 7 XECO 212 - the marginal...

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A New House Economy Week 7 XECO 212 Consumers use marginal costs and benefits to determine if they should make or reject a certain decision. Marginal costs refer to the change in cost over the change in quantity while marginal benefits refer to the change in benefits over the change in quantity (“Marginal Costs & Benefits”, n.d.). The strength of the economy as a whole could have a difference on the marginal cost and benefits associated with a decision to purchase a home. During these moments of economic growth, consumers may think that buying a new home may be a good thing, because of a better environment for living. During such periods, the consumer is not worried about mortgage or spending since he is optimistic about the economic situation. Therefore, he feels that the marginal benefits outweigh marginal costs. On the other hand, while in a time of recession, consumers might think by purchasing a home is an unwise idea since he is worried about being retrenched and thus prefer to save up money. In this case, he feels that the marginal costs outweigh
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Unformatted text preview: the marginal benefits. The removal of the tax deduction on mortgage interest will reduce demand for houses since it reduces the benefits which consumers can enjoy with the purchase of a new house. Other economic policies can also consumers’ decisions. For example, when the government increases income tax, consumers will have less disposable income and are thus less willing and able to purchase homes. This reduces demand for houses as well. Alternatively, when government increases government spending by building better infrastructures, it helps to attract investments and promote economic growth. As a result, consumers are more willing and able to purchase new houses and this can result in an increase in demand for houses. Reference: “Marginal Costs & Benefits”. (n.d.). Retrieved July 17, 2010 from Environmental Literacy Council: http://www.enviroliteracy.org/article.php/1323.html...
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This note was uploaded on 02/10/2011 for the course ECON 212 taught by Professor Steave during the Spring '10 term at University of Phoenix.

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