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Economic Profile of Housing Industry - Essay Example

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This paper "Economic Profile of Housing Industry" focuses on the fact that the housing market has been severely hit by the potentially catastrophic collapse of the banking, credit and financial markets. The housing market is deeply impacted by the demand elasticity, positive, negative externalities. …
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Economic Profile of Housing Industry
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Download file to see previous pages A shift in demand curve occurs due to a change in the income of buyers, change in the price of other goods and change in the taste of the goods. A shift in supply curve occurs because of change in the cost of production, change in the price of other goods and a change in the technology etc. If demand increases due to the influencing factor other than the price, the demand curve will shift to the right and when demand decreases due to an influencing factor, the demand curve will shift to the left.

When other things being unchanged, an increase in people’s income typically increases the demand for houses and hence the demand curve will shift to the right and as a result, the equilibrium quantity of houses bought will increase. In the existing housing market condition, it is obvious that the availability of credit is an influencing factor in shifting the demand curve for houses. If more credits and loans are available for less interest, the quantity demanded houses will increase and hence the demand curve will shift to the right. The supply curve of houses will be affected by a number of factors like the cost of production and technology used in house construction. Lipsey and Chrystal (2007) explain that a fall in carpenter’s wages will reduce the cost of production of the houses, thus shifting the supply curve of houses to the right. In such a case, construction firms may plan to increase construction and hence increase the number of carpenters demanded if the price of the houses did not change (p. 214). The demand curve for houses is negatively sloped. An increase in the output leads to a fall in the market price of houses.

Price Elasticity of demand is a measurement of the responsiveness of demand for a product or service to a change in its own price. Price elasticity of demand for houses measures the responsiveness of demand for houses to a change in its price. The demand for housing is expected to be inelastic because housing is a necessity and there are very few substitutes available.   ...Download file to see next pages Read More
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