Economics Coursework Essay Example | Topics and Well Written Essays - 1500 words

Economics Coursework - Essay Example Affordability of the customers: As mortgages have become less costly, the affordability of an average citizen has therefore gained growth. Moreover, mortgages are more readily available than before and therefore a consumer is more likely to avail himself a loan and increase his overall set of choices. Thus resulting in an increase in the demand shift of the consumer. (Neate, 2013) b. Recession: The pressures have double impact on the demand shifts. Not only it has reduced the purchasing power of a consumer but it has also taken away many sets of choices where a person used to invest. As recession is around, most of the investments are found to be riskier while these are also not expected to earn high returns. Therefore, potential investors, especially the large ones look at housing as a safe avenue for investment as the returns that it earns are quite stable while the capital gains are also a part of the investment. This also influences the demand curve to shift to its right and incr ease the overall demand of the house owning. (Neate, 2013) (O’sullivan, 2008) c. Herd Sentiment: It shall be noted that the growth of house prices has already outgrown the rate of growth in the loans extended in the form of mortgages. Such only reveals a point that the general public is following the trend. This can be due to reasons such as the fear of inflated home prices after the boom that these prices have received. Moreover, its cause may also be in the form of those investors who have looked it as a golden opportunity of capital gains and thus creating an artificial bubble of price inflation that will sooner or later burst out. (Rowley, 2013) d. Expectations: As prices have surged up so are the expectations of the people. As suggested in a recent article, the cost of average home may go up by 50,000 pounds in the course of the next five year. Moreover, keeping the sentiments in mind, the government’s recent move to provide interest free loan up to 600,000 pounds has only shifted the trend further and have once again given raise to the demands of the masses. (Lambert, 2013) If we point our attention to the factors that have may have impacted the supply side of the UK’s house owning phenomenon, the most important factor that grabs has shifted the supply curve includes the impact of exports whose disappointing performance has impacted the supply side of the above mentioned phenomenon. Since then, the government has focused more and more on supply side by encouraging the construction of more houses. Moreover, the lenders have been too lenient not only towards buyers but towards the sellers as well, since by supporting them in financing their projects they are pushing the supply curve as well, which in this case is toward its right. In a recent move, the government launched funding scheme which allowed banks to avail themselves inexpensive financing that allowed the lowering of the interest rates whose impacts were also seen on the deman d side. (Rowley, 2013) 2. As one can see in the table below that the profits will increase to 40,000 pounds if the fare is decreased from 10 pounds to 8 pounds: Fare Demand Total Revenue New Cost Profit 8 6 480 440 40 10 4 400 410 -10 12 3 360 400 -40 (O’sullivan, 2008) a. Below are the calculations required in case of price elasticity’s of demand by the midpoint formula method as well as percentage change