In the late summer of 2005, Hurricane Katrina caused a storm surge and levee breaks that flooded

Question:

In the late summer of 2005, Hurricane Katrina caused a storm surge and levee breaks that flooded much of New Orleans and destroyed a large fraction of the city s housing. Hundreds of thousands of residents were displaced, and about 250,000 relocated to nearby Baton Rouge. The increase in population was so large that Baton Rouge became the largest city in the state, and many people started calling the city New Baton Rouge.
Figure shows the effects of Hurricane Katrina on the housing market in Baton Rouge. Before Katrina, the average price of a single-family home was $130,000, as shown by point a. The increase in the city s population shifted the demand curve to the right, causing excess demand for housing at the original price. Just before the hurricane, there were 3,600 homes listed for sale in the city, but a week after the storm, there were only 500. The excess demand caused fierce competition among buyers for the limited supply of homes, increasing the price. Six months later, the average price had risen to $156,000 as shown by pointb.