Suppose that consumers begin to believe that the price of housing will be lower next period. What will happen in the market for housing as a result of these expectations?
A) Nothing will happen now. Consumers will wait for the price to actually decrease before changing their behavior.
B) Demand for housing will increase now as people adjust to the expectation.
C) Demand for housing will begin to fall now as people postpone their purchase until prices are lower.
D) Investors will buy up all the housing inventory believing they are getting a "deal."

Question

Quizplus · Accepted Answer

When consumers believe that the price of housing will be lower next period, they will postpone their purchase of housing, leading to a decrease in demand for housing. This is because, in expectation of lower future prices, consumers will wait until the price falls to make their purchase, causing a shift in the demand curve to the left. This decrease in demand will lead to a lower equilibrium price and quantity in the housing market.

Suppose That Consumers Begin to Believe That the Price of Housing