a) The demand for house purchases is determined by a number of factors including: ¬ Price – if the average house price rises faster than the average income, the demand for houses is likely to decrease. This is because people can no longer afford the higher priced mortgage repayments which will be the result of buying a house that costs more. Houses also become less affordable for first time buyers. There will be a contraction of demand shown by a movement along the demand curve to the left. ¬ Demographic factors – if there is an increase in the birth rate, average life expectancy, immigration, and number of divorces there will be an increase in the demand for house purchases as there is a higher proportion of people in the population that
One reason why the aggregate demand curve has a downward slope is because of the wealth effect. The wealth effect is the change in quantity demanded caused by the change in price level affecting real wealth. An increase in price level would cause the value of real wealth to fall. When there is a fall in the value of wealth, there is a decrease in quantity demanded. Conversely, a decrease in price level would result in higher value of wealth, causing an increase in quantity demanded.
They were not willing to rent at a rate that would eventually cause losses. The demand curve was shifted when a new company, Lintech Inc. moved into the area, increasing number of demanded apartme... ... middle of paper ... ... at large. The market receives increased demand for apartments when a new company moves into town, bringing new salaries and more potential customers. The price elasticity of demand is a measurement that illustrates the responsiveness to changes in price of the demand. For example, it is specifically related to the simulation in regards to shifting the price up and measuring how much the demand falls.
High-risk loans are loans that are over leveraged, where the financing is done more than the suggested values to be given. (Greenspan) This can result in immediate sell off when the property falls below that loan amount and to avoid further loss the banks start raising the installment. The housing market has seen pressure as a result of the over pressure on most homeowners by increasing rates. This affects people ability to make the payments, resulting in defaults. This is the problem with the burst in the housing market.
The diagram below shows what is likely to happen. AS shifts outwards and a new macroeconomic equilibrium will be established. The price level has fallen and real national output (in equilibrium) has increased to Y2. Aggregate supply would shift inwards if there is a rise in the unit costs of production in the economy. For example there might be a rise in unit wage costs perhaps caused by higher wages not compensated for by higher labour productivity.
The growth of a nation is also dependent on the rate of employment. 4. Interest Rates: When inflation is high, the value of money goes down leading to the reduction in purchasing power. Increase in inflation also causes rates to increase, so the cost of the good changes and people will have to use more money for the same services and goods. 5.
The best market to target for the solution would be those who are paying for rent rather than those buying houses for allowing more people to stay in their homes will decrease the surplus in the housing market. Since the supply of houses for sale will decrease, the price will increase allowing the selling industry to be reestablishing profit. Profit will trigger a domino effect leading out of the recession. The ideal sol... ... middle of paper ... ...rium. However, the fit solution for this economic downturn would be to focus on the cause for the shift of the demand curve; this case being price expectations.
Thirdly, production technology will affect the supply curve. When the level of technology is rising or falling , the production costs will go down or up. finally, the government policies will affect the supply curve. Positive policies will make the supply go up, conversely, it will go down. For example, the govenrment limit the amount of cars which people can buy, it will caused the supply curve down.
1. Consumer’s Income – It is considered as one of those factors that could affect the market because for Drop and Go Laundry Services, it is about the consumer’s purchasing power or capability to attain such services we offer. The higher the income, the more possibility that they will frequently avail DnG’s services. 2. Price of the Product - This factor is so important to be considered in the projection of demand because as the law of demand states: “As the price of the product increases, the demand for the product will decrease and vice versa.” Generally, people are price-conscious; they want services with low prices but with high quality or those that will surely satisfy their needs.
This leads to a drop in the number of items they produce. With a shift of the supply curve, the equilibrium changes from E1 to E2. On Figure 1 the equilibrium price increases while the quantity decreases. This indicates that the price of this luxury good has risen (P1→P2) due to an increase in production costs, especially resources and labour. Secondly, an increase in the number of wealthier people affected demand.