a) Between 2009 and 2014, employment in Greater Boston has increased by more than 200,000 units. At the same time, the number of housing units has remained almost unchanged during this period. Draw a supply and demand diagram to explain what happened in the Greater Boston’s housing market during this period. On your diagram show the equilibrium point in 2009 and the equilibrium point in 2014. Label the axes and all the relevant curves.
b) In the same period, the median price of a single-family home in the region increased by 12 percent (faster than inflation). Can your diagram above explain why prices had to increase markedly during this period? Was the supply of housing inelastic or elastic?