Residual user

From Wikipedia, the free encyclopedia

This article does not cite any references or sources. (July 2006) Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed.

This article is orphaned as few or no other articles link to it. Please help introduce links in articles on related topics. (July 2006)

Residual User Hypothesis:

Economic theory regarding residential construction.

The belief that residential construction cannot compete with other industries for inputs and cheap credit during high-boom periods. Consequently, this industry is a "residual user" utilizing resources only when other users cannot maximize their production. (i.e. during a recession or weak demand).

As a result, home construction tends to be counter-cyclical - financing can be acquired cheaply when the Federal Reserve is easing rates. Also, leases and rents tend to stay level compared to other goods during economic cycles, and as a result this makes construction more profitable during weak economic times and less so during a strong economy.

Useful link: http://www.haas.berkeley.edu/Courses/Fall2000/BA280/Past_Exams/Final2SolutionsPart2.htm

[1] [2]