Chapter 1: The Big Ideas of Economics

Question 1

Drew is happy because they have finished paying off the mortgage on their home. Drew now believes that the cost of housing is zero. An economist would respond by explaining that:

a) if the extra cost of owning is zero, then her extra benefit is also zero (marginal analysis).
b) by owning the house, they are giving up the opportunity to sell their home, buy a cheaper one, and keeping the left over money (opportunity cost).
c) If Drew’s cost of owning the house is zero then they should let their friend move into their home and not charge them any money for rent (efficiency
d) It is not fair that some people have mortgages and others do not (equity).

Answer 1

b) by owning the house, they are giving up the opportunity to sell their home, buy a cheaper one, and keeping the left over money (opportunity cost).