Economics

The housing bubble has become one of the major economic problems in 2008-2009. Since the middle of 2008, housing prices have presented the major economic challenge to everyone, who was involved in borrowing-lending activities. In his article, Robert Frank (2008) presents a novel look on the housing market. While Congress, according to Frank (2008), is debating loan guarantees that would help homeowners renegotiate their mortgages, the real causes of the housing crisis remain unclear. Frank (2008) believes that the so-called two-income trap could be responsible for the problems in housing markets families where both parents work have better opportunities to meet their financial obligations and seek to invest in their childrens future. When choosing the best school for their children, parents also face the need for the best house, for by choosing and purchasing the most expensive and the most sophisticated house parents actually pave the way to the better-off social class. However, the search for the best house is the direct prerequisite for the growing demand and increased lending and when the housing bubble is growing, misbalanced demand, liberal conditions of lending, and speculations equally contribute to the problems, which parents have to experience because of their desire to send their children to the best school.
Housing markets Microeconomic terms and definitions

What Frank (2008) discusses in his paper is directly related to the concepts of supply, demand, and prices, and tradeoffs. Supply as the ability of sellers to produce a certain amount of goods and demand as the willingness and ability of buyers to purchase these goods are expected to be in equilibrium, but this is an idealistic situation. In reality, and according to Frank (2008), in the situation when the level of demand exceeds that of supply, the market will have an opportunity to speculate on the buyers desire and willingness to purchase more. Moreover, buyers themselves are willing to accept the negative consequences of borrowing as a tradeoff in their decision to move to a better district. As a result, housing prices grow, lending conditions become more liberal, and consumers take these speculations as the necessary condition of their future prosperity.

Big ideas of microeconomics How housing markets work
In the context of the housing crisis, two big ideas apply first, choices involve tradeoffs  we always give something up to get something else and second, the market doesnt always work efficiently then, government action may be needed. Franks (2008) article is very demonstrative in that it discusses the trade-offs which consumers are bound to accept whenever they take a purchasing decision. It is difficult not to agree to Pindyck and Rubinfield (2005), who show trade-offs as one of the most important concepts in microeconomics, because consumers have to decide, what purchases they are willing sacrifice for the sake of purchasing other, more important items. But in housing, trade-offs were either invisible or unpredictable, and mortgage issues represent one of the major negative consequences of liberal lending opportunities. This is where the government is expected to become the major regulatory mechanism and the basic source of action on the housing markets. Government action in housing markets may take a variety of forms first, modified system of property rights will change the principles of resource allocation second, prices at which exchanges take place will either reduce the demand or will increase the supply of housing goods third the state itself can engage in the production of goods. The current housing crisis has become the best test to the role, which governments may play in microeconomics.

Microeconomics and the housing market Policy implications
The article itself and the terms, which it covers, have far-reaching economic and policy implications. First of all, it is not always appropriate to blame borrowers for everything that happens in the housing (or any other market)  very often, the growing demand is just the reflection of the misbalanced market situation, which suppliers use for their own benefit and profit. Second, consumers have limited incomes and trade-offs usually predetermine the quality and the direction of their market choices. However, long-term consumer trade-offs are often invisible or unpredictable, and may turn consumers into easy victims of market speculations. Finally, even where markets are expected to be free and self-regulated, governments remain the central measure of the market control in case of a market failure. That housing markets require constant government control is probably the major policy implication, which Frank (2008) provides. As a result, consumers, suppliers, the government, supply and demand altogether create a complex market mechanism that is hardly ever in equilibrium, and that also requires that individuals approach their choices consciously and can understand what is going on.