[Wcurve-devel] NUMBER ONE Success System

Tommy Lee noss1233 at gmail.com
Wed Aug 22 06:59:43 EDT 2007


The price of housing is also an important factor. The price elasticity of
the demand for housing services in North America is estimated as negative
0.7 by Polinsky and Ellwood (1979), and as negative 0.9 by Maisel, Burnham,
and Austin (1971).

An individual household's housing demand can be modeled with standard
utility/choice theory. A utility function, such as U=U(X1,X2,X3,X4,...Xn),
can be constructed in which the households utility is a function of various
goods and services (Xs). This will be subject to a budget constraint such as
P1X1+P2X2+...PnXn=Y, where Y is the households available income and the Ps
are the prices for the various goods and services. The equality indicates
that the money spent on all the goods and services must be equal to the
available income. Because this is unrealistic, the model must be adjusted to
allow for borrowing and/or saving. A measure of wealth, lifetime income, or
permanent income is required. The model must also be adjusted to account for
the heterogeneousness of real estate. This can be done by deconstructing the
utility function. If housing services (X4) is separated into the components
that comprise it (Z1,Z2,Z3,Z4,...Zn), then the utility function can be
rewritten as U=U(X1,X2,X3,(Z1,Z2,Z3,Z4,...Zn)...Xn) By varying the price of
housing services (X4) and solving for points of optimal utility, that
household's demand schedule for housing services can be constructed. Market
demand is calculated by summing all individual household demands.
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