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Week two of class has been dedicated to discuss and explain how supply and demand determines the price and quantity of goods and services within a competitive market structure; examine how normal, inferior, substitutes and complement goods affects the supply and demand structure; and explain how and why surplus and shortages can occur with various goods and services. There are two parts for this assignment that covers material in chapter four.
Part one asks the following: Many industries have gradually transitioned from effective products (they work / operate) to efficient products (they work/ operate, and they minimize inputs to maximize outputs). Over the past five years, the real estate industry has experienced some major shifts of demand and supply with residential housing. As a result of these shifts, price and quantity have been affected. Please explain how demand and supply of residential housing has affected the price and quantity for both buyers and sellers. Competition is important to supply-and-demand.
The number of buyers and sellers in the market at any time can control the market. Buyers compete against each other and the price rises, sellers compete against each other and the price drops. Equilibrium happens when no one has an incentive to offer higher prices or to accept lower offers. Perfect competition happens when there are so many buyers and sellers that no one alone can affect the price. In contrast, if a single buyer or seller can influence the price there is imperfect competition. Demand is the willingness and the ability of a buyer to pay.
It can be influenced by the price of the good; income and wealth; prices of substitutes and complements; population; preferences (tastes); and expectations of future prices. Supply is not just the quantity of a good or service and the willingness and ability of sellers to produce and sell it. According to The Law of Demand, when the price of housing rises and everything else remains the same, the quantity of the available housing demanded will fall. The quantity demanded is a specific value that is related to a specific price.
Demand is the relationship between the quantity demanded and the price. It involves quantities demanded for a range of prices. In the housing market, the quantity supplied is the total of houses available. This can be influenced by things such as price of other homes on the market, the cost of alternatives such as rent, and expectations of future prices. The Law of Supply states that when the price of a housing rises, with everything else the same, the quantity of the houses on the market will also rise.
If there is a housing shortage, buyers are usually willing to pay more causing buyers to bid against each and raise the price. If there is an excess supply of housing, sellers could start competing against each other for buyers by lowering their price. The housing market has had many changes over the last five years. Changes in employment can have an effect on housing. When industries and business downsize or close, there can be a significant change in the housing needs of communities. If people lose their jobs and move from an area, there can be a shift in demand for housing in that area.
This can cause an excess of available housing and the cost can drop dramatically. The value of housing in the area also decreases. This can affect the ability of people to be able to afford their homes that are not worth what they had been. When people need to sell their homes because they can no longer afford them, this just continues to add to the number of homes for sale and drives prices even lower. Part two requires a brief definition, a description, and an example for each of the follow terms: law of demand; substitutes; complements; and price floor.
According to The Law of Demand, when the price rises, and everything else remains the same, the quantity of the good demanded will fall. The quantity demanded is a specific value that is related to a specific price. Demand is the relationship between the quantity demanded and the price. It involves quantities demanded for a range of prices. Substitutes are two similar goods or services that impact the demand of one as the cost of the other changes. It is usually something that can be used instead of the other. One example is the iPhone and the Droid cellphones.
The demand for the Droid decreased recently when the iPhone dropped its price to $49 for the 3G. Complements are two products that are used together and the cost for one influences the demand of the other. An example would be peanut butter and jelly. If the cost of peanut better rises the demand for jelly will decrease. Price floor is a minimum government mandated price that tries to control the cost of a good or service. It is usually used to keep the price up of something that is thought to be too cheap. To be effective, the price must be set above market price.
An example is an agricultural price support such as the cost of a gallon of milk. References Basic Economics. (2007-2011). Supply and Demand. Retrieved from http://www. basiceconomics. info/supply-and-demand. php Mulligan, CaseyB. (May 11, 2011). Supply and Demand (in that order. Retrieved from http://caseymulligan. blogspot. com/ McEachern, W. A. (2010). Econ Micro 2 (2010-2011 ed. ). Ohio: South-Western Cengage Learning. The New York Times. (2011). About. com, Economics. Retrieved from http://economics. about. com/