Week 2 Flashcards
Factors affecting demand
o Utility (Satisfaction) o Scarcity o Desire o Effective purchasing power or effective demand o Desire and ability to pay
Factors affecting supply
o Land – all Natural ressources - RENT o Labour – human effort - WAGES o Capital – Equipment to increase o production - INTEREST o Entrepreneurial coordination – Business Owners’ skills – PROFIT
o Supply of land is fixed in SR
o The use can be changed!
o The intensity of use can change!
o Supply of real estate can be complex to figure out
explain law of demand
There is an inverse relationship between the price of good and quantity of buyers willing to purchase in a defined period, ceteris paribus (as price increases demand decreases)
What causes the Demand curve to SHIFT (right diagram)
Increases/decreases in non-price factors: o Population o Income o Availability of Credit o Personal Lifestyle o Change in tastes & substitute products o Government actions o Advertising
explain supply in the short term
Supply of land is fixed in the short term and cannot respond quickly to changes in market conditions.
E.g. It takes several years to subdivide land, develop lots and build houses
o People may decide to put their house for sale (if they believe the market is favorable) and move to another city … this increases the supply without involving new land or building new homes
explain the law of supply
There is a direct relationship between the price of good and quantity sellers willing to offer in a defined period, ceteris paribus (price increase = quantity supplied increases)
what can cause supply to shift
What causes the Supply curve to SHIFT…
Increases/decreases in non-price factors
Changes in the costs of ANY of the factors of production:
- Land, Labour and capital, if cheaper →↑S (shifts right); if dearer →↓ S (shifts left)
A change in demand for one product can causes changes in supply of another product
Anticipation of changes in future prices, inflation, profits can change amount of goods supplied
during surplus supply what happens to price and quantity?
how can this be resolved?
Conditions of excess supply drive price and quantity lower
Drop prices or reduce supply to resolve.
explain elasticity of supply
o Elasticity – how much qty changes as price changes
o Inelastic – vertical supply curve, no change in qty as price increases
o Supply of land & property fixed in short run
o Cannot respond quickly
o Inability to increase supply …..time lag in getting permits, building times etc
o Unit elasticity
Supply inelastic (no more buildings) Demand increases… more people need office space
Elasticity – how much qty changes as price changes
Inelastic – vertical supply curve, no change in qty as price increases
Supply of land & property fixed in short run
Cannot respond quickly
Inability to increase supply …..time lag in getting permits, building times etc
Elasticity is relative…..Inelastic supply indicates that in the SR supply is fixed…ie doesn’t respond to price signals
What is consumer surplus
Difference between total amount that consumers are willing and able to pay for a good or service (shown by the demand curve) and the total amount they actually do pay (i,e market price)
Consumer surplus is indicated by the area under the demand curve and above the market price
What is producer surplus
Difference between what producers are willing and able to supply a good for and the price they actually receive
Producer surplus show by the area above the supply curve and below the market price
Higher prices provide and incentive to supply more to the market (profit motive_
Explain law of diminishing returns
If an increasing amount of variable factor are applied to a fixed quantity of other factors per unit of time, the increments in total output will first increase buy betyond some point, it begins to decline
Each added input leads to a decreasing rate of output - it’s best to stop somewhere within this point
i.e before negative returns
passed ‘point of maximum yield’
The graph below highlights that the majority of Australia’s population is distributed within coastal cities, what are the key reasons why demand is so high to live in coastal cities
HOW DID SETTLERS ARRIVE?
Area located near ocean
Ships need to be docked
HOW ABOUT FOOD?
Land Fertile: easier to grow and feed the population
Fresh Supply of Water: Land can be cultivated
Immigrants or Rural Area residents prefer costal city because of:
EMPLOYMENT
Jobs are located in these area
If there is a demand in job, people will move to that area
Enjoy stable income & Good quality of life
QUALITY of LIVING
Infrastructure
Better Education
The article in this link highlights that Melbourne has the largest population growth over the past 12 months with 2.1% growth, what do you think are the key reasons for this rapid growth in Melbourne
REPUTATION
Ranked among the best in the world
The world best 10 cities to live in
EMPLOYMENT
Low unemployment rate
Strong job market & more opportunities
Easier to find job compare to other city
EDUCATION
Good Education system Deakin!
CLIMATE
Good Climate No environmental hazard (Earthquake, Tsunami…etc.)
Describe the implications for the property market and key industries which would be affected in Perth, what are the consequences for the city of Perth?
if 10% moved to Melb
Recession Reason: Decline in Mining Sector Western AUS suffer so has Perth Assumption: 10% From Perth Melbourne
Supply curve shifts to Right (see graph) as people try and sell their houses, prices drop
You could draw a similar diagram for rental properties, increase supply as rental contracts are not renewed
Vacancy Rate Increase - Vacancy Rate Decrease in Melb as increased D for rentals
Rent decrease - Rent Increase
Property Price Drop - Property Price Soar
Construction Demand Decrease - Construction Demand Increase
