New House Economy

New Home economy

    Marginal costs refer to the change in cost over the change in quantity while marginal benefits refer to the change in benefits over the change in quantity (“Marginal Costs & Benefits”, n.d.). Consumers use marginal costs and benefits to determine if they should make or reject a certain financial decision such as buying a new home.   The strength of the economy as a whole could affect the marginal benefits and the marginal costs associated with such a large financial decision. During times of a stronger economy and economic growth a consumer may feel that the purchase of a new house is a good idea because it allows them to enjoy a better home for their family. During these times, the home buyer has a positive outlook on the state of the economy and does not worry too much about a mortgage or what they are spending. With this type of thinking the homebuyer feels that the marginal benefits outweigh marginal costs. On the other hand, during times of a poorer economy or a recession a potential homebuyer may feel that purchasing a new house is not the best financial decision since they are worried about possibility losing their job and so saving money would make more sense.   In this case, he feels that the marginal costs outweigh the marginal benefits.
The removal of the tax deduction on mortgage interest will reduce demand for houses since it reduces the benefits which homebuyers would otherwise enjoy with the purchase of a new home. Other economic policies can also effect a potential homebuyer’s decision. For example, an increase in income tax means potential homebuyers will have less disposable income and are therefore less willing and able to purchase homes.

“Marginal Costs & Benefits”. (March 29, 2008). Retrieved May 18, 2012, from Environmental Literacy Council: