When Housing Prices Began to Decline After Their Peak in 2006,many

question 35

Multiple Choice

When housing prices began to decline after their peak in 2006,many subprime borrowers found that their mortgages were "underwater." This meant that

• A)the value of the house fell below the amount of the mortgage.
• B)the basement flooded since they could not afford to fix the leaky plumbing.
• C)the roof leaked during a rainstorm.
• D)the amount that they owed on their mortgage was less than the value of their house.

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Definitions:

Short-Run Supply

The supply of goods that occurs when the sellers are only able to change some, but not all, conditions of production.

Diminishing Marginal Returns

A principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other inputs remain constant.

Perfectly Competitive

A perfectly competitive market is one where many buyers and sellers trade identical products so that each has no influence on the market price.

Short Run

A period in which at least one factor of production is fixed, limiting the ability of a firm to adjust to changes in market demand or supply.