Week 1

Question 1

different types of economics systems

Answer 1

Command Economy (pure socialism – mixed socialism):
o	Govt owns and produces G&S
o	 Distributes according to their interpretation of its citizen’s needs

Market Economy (mixed capitalism):
Ability to pay, not need, that determines who gets G&S, govt provides defence, judiciary and some basic benefits

Question 2

principles of capataism

Answer 2

• Private Property – property rights
• Private Enterprise – resources owned by citizens
• Competitive Markets – D & S prices
• Profit Motive – encourages risk taking
• Laissez-faire (hands off) – minimal govt interference

Question 3

define a market

Answer 3

a place where buyers and sellers meet to bargain and exchange G&S at negotiated prices

Question 4

explain perfect market

Answer 4

• Numerous buyers and sellers
• Free entry and exit of the market (stamp duty)
• All parties are knowledgeable (perfect information)
• All parties are free to trade or not
• All products are similar and interchangeable
• All products can be transported to better markets
• Items are small, inexpensive and frequently purchased
• Government plays a very minor role in pricing

Question 5

common property rights

Answer 5

• Ownership of Real estate gives ‘rights’
• Right to use
• Right to possess
• Right to exclude
• Right to dispose of the property
• Includes the surface, the subsurface and the air above (some rights are restricted)

Question 6

explain the nature of the real estate market

Answer 6

• Relatively few buyers & sellers
• For any type, price range and location of real property
• Sellers control during a seller’s market
• Buyers control during a buyer’s market
• Generally buyers nor sellers are very knowledgeable about the product
• Real property is heterogeneous - unique
• Not similar or interchangeable!
• Location is fixed / Cannot be transported

Question 7

explain unique characteristics of property

Answer 7

Property Unique Characteristics:
Legislation and regulations dictate the sector – leading to high transaction costs
• investor borrowing restrictions, development requirements
• buying costs - stamp duty, legal fees, lenders mortgage insurance, mortgage transfer fees
• selling costs - agents’ fees and capital gains taxes

Difference of property markets:
Is influenced by the interaction of supply and demand BUT…. The interaction is not smooth
• Real estate markets are imperfect!
• Lack of knowledge relating to property
• Distortion of prices
• Do principles of Supply and Demand operate differently in real estate markets?
• Many segmented markets….luxury, inner city, apartments, character houses….etc

Question 8

Explain the concept of opportunity cost and list the factors that contribute to opportunity costs when choosing to live in an inner suburb like Richmond (Melb) or Double Bay (Sydney) vs Narre Warren (outer Melb) or Penrith (outer Sydney).

Answer 8

Opportunity Cost:
The benefit an individual could receive but need to give up the one of the choices or take another action

Live in inner city suburbs – high cost but low travel time
Live in suburbs further out from city, cheaper but OPPORTUNITY COST  Travel Time + Fuel Expense + Congestion Frustration