Use the supply/demand model to examine the possible effects of different interventions in the housing market. Introduction To determine prices in microeconomics, the supply and demand model is used, it establishes a relationship between the two forces in a competitive market. The key determinants of housing demand include the price of housing to rent or buy, disposable income, the credit/mortgage available, the interest rate on the mortgage payments, type of housing and other relevant demographic factors such as household composition, age and so on, location relative to work/travel to work costs. In this assignment, I will discuss how different interventions will affect the supply or demand of property in the housing market. Supply and Demand
DEMAND CURVE Demand is defined as the different quantities people are willing to buy at different prices. As the price of good increases the demand decreases and vice versa. The law of demand states shows an inverse relationship between price and quantity demanded. The demand curve shows the relationship between the quantity of a good a consumer is willing to buy and the price of the good. The equation for that shows the relationship between the quantity demanded and price is as given below: QD = f (P) QD : Quantity demanded P : Price of the commodity.
When smaller producers would not even dream to compete with them. The production price drops significantly the more products you produce. The monopoly may drop the price lower then the cost of production for a time and flood the national or even foreign
For example, in a test-market model, the entrant probably knows that the demand for the new product is low because of the predatory activity engaged by the incumbent. However, it cannot know how the demand would be in a normal competitive situation. Because of the lack of information, the entrant will possibly decide to exit the market. Financial market models of “long-purse”
4. Modelling supply and demand theory The proposed model for a real world demand and supply estimate is based on two more general assumptions. First, both supply and demand curve’s slopes are supposed to be rather stable, but their positions are unstable, especially the demand curve position. One may imagine that first some people somehow raise money or credit and demand stuffs they need. Then each producer perceives the level of its individual demand and decides the price to bid and the production amount to launch.
Firstly, demand- pull inflation. A situation where aggregate demands for goods and services greater than the available supply of the output. This will cause the general increase in price level of the economy. Lower tax at increase government spending will lead to demand- pull inflation. A failure of the Central Bank to region in the MS also makes the demand- pull inflation worse.
The government surplus is represented by B and E, and last but not least the deadweight loss is defined by areas D and G. WHY A vertical supply curve appears when the same quantity is produced at any price, which can be caused by, for example, a limited amount of good or service. No matter how much consumers are willing to pay, we cannot produce more of it. VAN GOGH`S PAINTINGS An almost vertical demand curve is caused by inelastic demand – demand for products that we find necessary for our lives and at the same time we cannot find substitutes for. Even if the price rises or drops, people still need a very similar amount (specific examples might be gasoline, electricity, medicaments). The tax would be almost totally paid by consumers in the second situation, almost vertical demand curve.
If due to some reason, consumers expect that in the near future prices of the goods would rise, then in the present they would demand greater quantities of the goods so that in the future they should not have to pay higher prices. The next is the prices of related commodities such as substitutes and complements can also change the demand for a commodity. Usually, the decrease in demand does not occur due to the rise in price but due to the changes in other determinants of demand but decrease in demand for a commodity may occur due to the fall in the prices of its substitutes, rise in the prices of complements of that commodity and if the people expect that price of a good will fall in
The Demand and Supply model can help explain global phenomena like the global equilibrium price for gold. The way the model works is that if there is a increase in demand with a relative decrease in supply, then prices will increase and vice vera. This demonstrates how reason can be used as a way of knowing to explain how the global equilibrium price will keep rising relative to the decreasing supply of gold. Although when analysing supply and demand it must be taken into account that they are independent of each other which can be seen as a limitation of the model. As economics is a subject explored through the human sciences, the knowledge gained from economic models can be seen as justifiable when attempting to produce knowledge of the world.