Extending the PDC Model with Curve Shifts

Two Mechanisms for Disrupting Equilibrium in the PDC Model

Exogenous Factors in Economic Models

Consider a dynamic model representing a city's housing market, where the expected rate of price change is a function of the current price level. Two distinct events occur in this market:

Event A: The municipal government enacts a new zoning law that permanently increases the number of homes that can be built per acre, fundamentally altering the long-term supply potential at all price points.

Event B: A single, large apartment complex is unexpectedly sold to a foreign investor for a price significantly above the market average, causing a temporary, localized spike in the average price statistic for that month.

How would these two events be interpreted within the model's framework?

A dynamic model describes the relationship between the current price of a good and its expected rate of price change, represented by a curve. Match each economic event described below with its correct representation within this model's framework.

Analyzing Housing Market Dynamics

Modeling Market Changes