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Economics Coursework: The Price Mechanism - House prices.

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Economics Coursework: The Price Mechanism Introduction I have been asked to investigate a question similar to 'What determines the price of a particular good or product'. I have chosen to answer the question, What determines the price of houses? I have also come up with a hypothesis related to my question, later in my investigation I will either prove or disprove this theory. My hypothesis is, House prices are mainly determined by mortgage rates. To collect my information I will use a wide range of resources. These will be: � The Internet, particularly specialised sites dealing in economics (e.g. www.bized.ac.uk, www.moneyextra.co.uk) � I will try to arrange an interview with someone working within a bank or an estate agent. I will hope to gain a lot of information from these two sources � I will create and use a questionnaire and ask about 20/30 people, with a mortgage the questions on the questionnaire. This is because if I asked someone of my age what they thought, the set of results I would be getting back from my questionnaire would not be as accurate as they could be if I asked someone who owned a mortgage. � I will try to use as much of my class work as possible. I will need to look at my notes on Demand and Supply. Main Analysis I will start by looking at the main determinants for the supply and demand. ...read more.


and so if we looked at the behaviour of that we could see how the level of income on average has grown. Affordability (Income): Another thing that effects demand for a property is the affordability of the mortgage this means, how easy is it to pay the monthly mortgage? In 2001 properties are more affordable now than before. In 1990 - approx 2/3 of household income would go on servicing the mortgage. Today, that figure is just above 1/3. So - just think if: � - 50 year mortgages become available � - Britain joins euro (lower interest rates) � - Market for mortgages continues to be competitive � - Interest rates continue a long term decline � - Incomes continue to increase faster than inflation ...Then property will be more and more affordable and so values will go up So a 50% increase in 5 years is very possible - in areas of great demand (like Richmond, Surrey) it's more likely to top 75%! Values should continue to increase. Booms and busts: As the level of income over the past 2 years grew, so did the demand for houses. Property prices in England and Wales continued to surge in the second quarter of last year with the average cost of a home rising more than 8 per cent. Figures released by the Land Registry show homeowners in Greater London enjoyed a spectacular rise of 12.3 per cent in the value of their properties compared with the same period last year; the average cost of a terraced house in England and Wales is now �69,148. ...read more.


Also, every one wants to live in the best districts of our towns and cities - so these will always be in demand, without the demand for a product the product would not be built, as long as there are people living there will always be a demand for accommodation of some sort. Economical Glossary Demand: Demand is the quantity of a good or service that a consumer is willing and able to buy at a given price in a given time period. (See effective demand). For normal goods there is an inverse relationship between quantity demanded and the good's own price. GDP (Gross Domestic Product): GDP measures the value of output produced within the domestic boundaries of the UK. It includes the output of foreign owned firms that are located in the UK. Money: Money is any asset that is acceptable in the payment of transactions or in the settlement of debts Maximum Price: Governments can impose legally binding maximum prices to set a statutory price ceiling in a market. To be effective a maximum price must be set below the free market price. The normal effect is to create an excess demand for the good or service. This requires some mechanism for rationing the available supply. Supply: Supply is defined as the willingness and ability of producers to supply output on to a market at a given price in a given period of time. There is usually a positive relationship between supply and price. See also price elasticity of supply and conditions of supply. ...read more.

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