Reference: https://en.wikipedia.

org/wiki/Subprime_mortgage_crisis
Question:
Subprime mortgage crisis - briefly discuss each of these economic concepts:
(1) Demand and supply
(2) Market failure
(3) Property or land ownership
(4) Coast analysis
(5) Profit maximization
ANS-
Context header: Global Crisis
Context explanation: Global crisis refers the financial instability all over the world. It also
refers as great recession. Global crisis is a situation in which a steep decline in the value of
financial instrument and huge liquidity shortfalls occurred.
Answer and explanation:
Subprime mortgage crisis was the crisis related to huge fluctuation in financial market due to
unregulated mortgage lending by the banks.
1. Demand and supply
Demand refers to ability to purchase something at given price. Whereas supply is something
the sale in the market at offered price in a particular time. In subprime mortgage crisis
demand for loan was very high, but most important thing is ability to pay and this thing was
completely ignored by the bankers in united sates. Therefore bank had given loan to large
subprime lender without taking analyzing their credit score. When the supply was totally
distorted because of not repaying loan amount by subprime lenders global financial market
was totally collapsed.

2. Market failure
Market failure is the condition of market in which cash liquidity ha been sharply decline.
Demand and supply in market failure condition become displaced where subprime mortgage
crisis occurred and global economy collapsed severely because of sudden downfall of home
price in United States.

3. Property or ownership
The main reason for having a subprime mortgage crisis was the subprime property land
ownership; those are not enough cable to repay the loan. When the price of home start falling
sharply, the prime home buyers was also start selling their house without repaying the loan.

4. Cost analysis
In economics cost benefit analysis is the systematic technique or cost analysis by keeping the
benefit or returns a prime motive. For any project cost benefit analysis give the clear estimate
of expected return, in the case of subprime mortgage crisis commercial bank and investment
financial institution had working together and given huge loan to subprime home lenders
without analyzing cost benefit of subprime lenders.

5. Profit maximization
In economics profit maximization is the concept in which any firm follow different strategy
like price discrimination to maximize their profit. In the case of subprime crisis bank also
thought that by giving too many loans to the people they earn huge interest. So, banks
provide too many loans to subprime lender who has later been unable to repay even principle
amount. Therefore there was huge financial crisis occurred.