Economic Theory and the Housing MarketThe core of economic theory is based on supply and demand. Demand is what consumers are willing to buy at a given price. Supply is what suppliers are willing to sell at a given price. We can then relate this to the housing market. There are factors that can increase or decrease supply, for example cost and availability of resources, government taxes, etc. There are also many factors that affect demand, for example prices of substitutes (apartments), prices of complements (mortgage), etc. These factors can then increase or decrease demand. THE HOUSING MARKET I will use the housing market to try to prove whether different economic theories contain any elements of truth by looking at statistics and facts, or is it just theoretical and unrealistic. THEORY ONE ---------- The first economic theory states that if real household income increases, then the demand for a good, hence houses, should increase. Although housing is considered more of a necessity, some homes can certainly be considered luxury as well. 1115.6361996124316.5191997144017.7131998134719.0571999147019.64120001499 Looking at the data we can almost automatically see that rising incomes have correspondingly increased demand for home purchases due to consumer confidence and spending. If they have more money, they believe they are able to spend more and therefore take out a mortgage. THEORY TWO Compliments are two goods that are purchased jointly, because they depend on each other, i.e..