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Explain using economic analysis what determines the price of owner-occupied houses in the UK.

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Introduction

a) Explain using economic analysis what determines the price of owner-occupied houses in the UK A market exists wherever there are buyers and sellers of a particular good. The buyers demand the goods from the market whilst sellers supply goods onto the market. Price is the market value of the good and is decided depending on the changing conditions of demand and supply. The law of demand states that more will be demanded the lower the price when all other things remain equal - ceteris paribus. The law of supply states that the more that is supplied the higher the price. As these two factors change, the price of the product changes. Where the curves on the graph cross it is known as the equilibrium price. This is where demand equals supply. Changes in demand and supply will lead to new equilibrium prices being set. A change in demand will lead to a shift in the demand curve, a movement along the supply curve and a new equilibrium price. If given a choice, consumers in the UK would prefer to own their own homes rather than rent. ...read more.

Middle

This meant people saw houses less as an investment as the prices weren't rising as much. This lead to a decrease in demand. A decrease in demand would cause the demand curve to move to the left, causing a decrease in price. The fourth factor that effects demand is interest rates. When consumers buy a house, they usually need a mortgage. This is a way of borrowing money to buy property. When potential buyers are looking to buy a house they look at the price of the monthly payments on the mortgage as much as the price of the house. When interest rates rise, the amount paid in monthly repayments rises. This leads to a decrease in demand for owner occupied housing. People have to pay more each month which makes buying a house less attractive. A decrease in demand would cause the demand curve to move to the left, causing a decrease in price. The price of items is determined not only by the demand for the product but by how much can be supplied. How much can be supplied is very influential on the price. ...read more.

Conclusion

The third factor affecting supply is new Government legislations. In 1980, the Government gave tenants the right to buy their council houses. This led to an increase in the number of houses in the owner-occupied market. This led to over one and a half million houses becoming owner occupied. This legislation bought in by the Government has increased the supply of housing. An increase in supply would cause the demand curve to move to the right, causing a decrease in price. The fourth factor affecting the supply of housing in the UK is the Government subsidies. The Government have many schemes to try and improve the UK's less profitable areas by paying businesses to build there. This includes building businesses to improve employment in these areas and houses for these people to live. This has led to an increase in housing as building has become more profitable for companies who are receiving subsidies from the Government. An increase in supply would cause the demand curve to move to the right, causing a decrease in price. The price of owner occupied housing is determined by how much is demanded compared to how much is supplied. As the demand and supply curves fluctuate, the price of owner occupied housing imitates these movements. Sophie Bradstreet 12JCh ...read more.

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