The house in san francisco will sell for

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Unformatted text preview: Francisco, California, and the price of a similar house in a similar neighborhood in Louisville, Kentucky? The house in San Francisco will sell for approximately three to four times the price of the house in Louisville. Why, when it comes to candy bars and bread, does a good sell for approximately the same price no matter where it is purchased in the United States, whereas a house purchased in San Francisco is so much more expensive than a similar house in Louisville? Supply and demand give us the answer. Section 2 Supply and Demand in Everyday Life 141 06 (128-153) EMC Chap 06 Although similar in style and size, houses in different geographic locations often sell at prices differing in the hundreds of thousands of dollars. What similar products do not differ in price from location to location? Why? 11/21/05 3:13 PM Page 142 Let’s imagine for a second that the price of a candy bar is not the same in Toledo as in Miami. At a particular point in time the price for candy bars is $2 in Toledo and $1 in Miami, because the demand for candy bars is higher in Toledo. Knowing what you know now about supply and demand, what do you think will happen? Given the price difference, the suppliers of candy bars will prefer to sell more of their product in Toledo than in Miami, so the supply of candy bars will increase in Toledo and decrease in Miami. Then what will happen? The price of a candy bars will decrease (say, from $2 to $1.50) in Toledo and increase (say, from $1 to $1.50) in Miami. Only when the prices of candy bars are the same in Toledo and Miami will suppliers no longer have an incentive to rearrange the supply of candy bars in the two cities. The same type of activity would affect the price of bread in the two cities. When suppliers can shift supply from one location to another, price will tend to be uniform for products. Now consider houses in different cities. Housing prices are much higher in San Francisco than in Louisville because the difference between demand and supply (more demand, less supply) in San Francisco is greater than it is in Louisville. If...
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This document was uploaded on 01/16/2014.

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