SAC 2 Preparation

Question 1

Question 1:
Define “negative gearing.”

Answer 1

Negative gearing occurs when investors intentionally make a loss on their rental properties purchased, which is executed by charging a lower value of rent than what it cost, or continually costs them to fund the property.

Question 2

Question 1:
Explain a strength of “ending negative gearing.”

Answer 2

Negative gearing is only done by the wealthier people in society, who have the resources to purchase these properties in the first place. Hence, placing an end to this will eradicate the inequality that exists in a society where the wealthier get to avoid tax, creating a more equitable society for all.

Question 3

Question 1:
Explain a weakness of “ending negative gearing.”

Answer 3

If negative gearing were to be banned, then the cost of renting would increase significantly. This means a large number of people (those with less financial resources) will not be able to afford to rent anywhere, which’ll decrease the material living standards in the economy on a wider scale.

Question 4

Question 1:
Define “stamp duty.”

Answer 4

Stamp duty is a tax that buyers must pay when they purchase a property in the market, increasing the overall cost of their purchase.

Question 5

Question 1:
List a strength of “reducing stamp duty.”

Answer 5

If stamp duty were to be reduced, the consumer demand for properties in all markets would increase according to the law of demand, as purchasing a home would now be cheaper. As the availability for consumers to purchase property will increase, the material living standards of the state will be improved as a whole.

Question 6

Question 1:
List a weakness of “reducing stamp duty.”

Answer 6

If stamp duty was removed or even just reduced, a prominent source of revenue would be lost by the Victorian government. This would mean there would be fewer resources relocatable to other areas in the economy, such as investments in public education and other important societal areas. This may reduce non-material living standards as a whole.

Question 7

Question 1:
Define the “First home buyer’s grant.”

Answer 7

This is a payment of $10,000 provided to first-home buyers in Victoria to assist them in purchasing their first property.

Question 8

Question 1:
List a strength of “doubling the first home buyers grant.”

Answer 8

If the first home buyers’ grant was doubled, then these kinds of consumers would have a greater ability to purchase homes in the market. Thus, demand for property within all markets would increase and the material living standards of young and foreign people would be improved from this action.

Question 9

Question 1:
List a weakness of “doubling the first home buyers grant.”

Answer 9

If this were to happen, the demand for properties within all markets would increase significantly. This will cause an excess demand for homes in all markets and would cause sellers to raise their prices to eliminate this, which will stimulate inflation.

Question 10

Question 1:
List a strength of “relaxing zoning laws to allow for more redevelopment.”

Answer 10

If more land development was encouraged through the relaxation of zoning laws, then the supply to all property markets would increase, meaning more property would be available for consumers to purchase in the market. This will improve the material living standards in the economy.

Question 11

Question 2:
Identify two ways consumers can make rational decisions in the housing market.

Answer 11

: Word of mouth- Potential buyers in a property market can seek information from people they know about all things to consider about purchasing a certain property in a certain area. Hence, they can decide if this purchase will maximize utility at the lowest cost. However, at times the “word of mouth,” can be quite subjective.

: Open inspections- Potential buyers in the housing market can also visit actual properties at open inspections to examine the key features of a home and decide whether it will maximize their utility when buying the property. However, consumers can often still be misleading at these open inspections, so this will not result in perfect information.

Question 12

Question 1:
List a weakness of “relaxing zoning laws to allow for more redevelopment.”

Answer 12

If property development is unregulated, then developers may construct properties in such manners or locations that could have damaging effects on the environment. This will lead to a deterioration of non-material living standards in the economy.

Question 13

Question 2:
How would the function of the property market be impacted if this power was changed in any way?

Answer 13

: Increase in consumer power-Then there will be a reduction in the demand for property as consumers will realize they’ll never truly “maximize,” utility to a full extent in the property market.

: Decrease in consumer power: If consumers had less information about a purchase in the property market, then it’s likely they’ll be charged an excessive amount for property that’s not worth the price tag. This may cause a deterioration in the non-material living standards of a state.

Question 14

Question 3:
Identify two strategies used to increase profits in the property market.

Answer 14

1: To identify a target market and to sell to them directly.
2: To de-clutter and depersonalize a property, enabling buyers to envision their future in a house.