Consider a household with income of $100 and housing consumption equal to 40 units of quality. The income elasticity of demand for housing is 0.75. a . Use a graph like the one shown in Figure 14–4 to show the household’s initial utility-maximizing choice (labeled i ). b. Suppose the household’s income increases to $120. Show the household’s new choice in the absence of moving costs (labeled m for “move”) and in the presence of moving costs high enough that the household will not move (labeled s for “stay”). c. Suppose that given its moving cost, the household will move if the gap between its actual housing consumption and its ideal consumption (with moving cost 0) is at least 30 percent. The household will choose point [m , s ] because . . . d. The threshold income level, the income just high enough to cause the house- hold to move is _____ because . . .

QUESTION:

Stay or Move?

Consider a household with income of $100 and housing consumption equal to 40 units of quality. The income elasticity of demand for housing is 0.75.

(a). Use a graph like the one shown in Figure 14–4 to show the household’s initial utility-maximizing choice (labeled i).

(b). Suppose the household’s income increases to \($120\). Show the household’s new choice in the absence of moving costs (labeled m for “move”) and in the presence of moving cost high enough that the household will not move (labeleds for “stay”).

(c). Suppose that given its moving cost, the household will move if the gap between its actual housing consumption and its ideal consumption (with moving cost = 0) is at least 30 percent. The household will choose point [m, s] because…

(d). The threshold income level, the income just high enough to cause the household to move is ____ because…