Ap Case Study Managerial Economics

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a) -Substitute goods- If there are many close substitutes and the price of substitutes fall, it means that the demand will fall because consumers will have more options which are relatively cheaper, such as renting, rather than buying a new house.
-Levels of disposable income- If levels of disposable income fall the price of houses will appear to have become relatively more expensive and people can no longer afford to buy luxury products that are a high proportion of their income, therefore demand for house purchases falls.
-Expected future prices- If expected future prices are expected to remain low people may decide to wait and not buy in the current market as they can be assured in the future, prices will not increase, leading to demand …show more content…
Therefore the supply of houses will increase because more houses can be built in a given time period for a lower cost.
-Number of suppliers- If the number of suppliers is high more houses can be built because across the country, so more firms are building houses in order to stay in business and remain competitive. This will result in the supply of houses increasing.
-Subsidies- If the government provides subsidies, costs of production will fall, and this will encourage firms to increase supply as they will be able to afford more resources, and therefore build more houses.
-Relax regulations- If laws for planning permission are relaxed so that it is easier to obtain, it means that more suppliers are able to build on more areas of land, and as a result supply is increased.

c) UK house prices have risen due to an increase in demand for houses. As a result there is a shift of D from D to D1. This shift causes price to increase from P to P1 and quantity to increase from Q to Q1, so the equilibrium has changed.
Supply has remained relatively stable therefore there is no shift in Supply.

(Miles,

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