Managerial Economics Essay Example | Topics and Well Written Essays - 1000 words - 2

Managerial Economics - Essay ExampleThere are some(prenominal) factors that contribute to the pricing of houses in a free merchandise. The Basic Principle of ingest and fork out This staple fiber principle of carry and supply would chiefly govern the lodgement market, i.e. when the study for housing increases the prices will pass to go up in order to reach equilibrium at the present level of supply. This is a typical example of demand and supply. The equilibrium is firm when the price at which the vendee would standardised to flip purchase coincides with the price at which the marketer would like to make the trade. Now the value of the housing properties is determined by both the supply side and the demand side factors which include the price at which the seller would like to go for the transaction with a prospective buyer and the actual price which the buyer would like to pay (Ngai and Tenreyro, 2009, p.7). Now when the demand for residence in a particular proposition locality is high thusly the dearth of supply would cause the market power to shift from the buyers to the sellers and hence prices would be determined by the seller. Thus, when there is excess demand in the housing market the sellers may hoard the residential building block in order to create a price differential and make more profits. On the different hand when the demand for housing is low the sellers might compromise on the prices and it would be a buyers market where the buyer would have a lot of control over the settlement of the prices. The demand for housing at a particular area may increase due to demographic reasons as well. Suppose a new industry is set up in a place where previously there was no human establishment, then labour migration will take place in that particular area and those people would need residential investments. Again as the number of divorces is increasing people these old age need more residential units separately and hence the demand for housing in creases. In the above elaborate we see that the initial demand for housing in a particular area id D1 and the initial supply is S1. The vertical axis would represent the prices of the housing units and the horizontal axis would represent the quantity of houses traded in the market of that particular area. The initial equilibrium price and quantity is at P1 and Q1 respectively. Now due to population inflow, the demand for housing units increases to D2. The supply remaining constant at S1, the new equilibrium would be at the period of age P2Q2. A point to be famed in this context is that due to an increase in demand the quantity supplied is increasing but at the lesser rate than that of the prices, i.e., P1P2 would be greater than Q1Q2. It should be noted that the supply here is relatively inelastic. The reason behind this is that there is a lag in time in between the price change and the augmentation of supply in housing in that area. When the supply of housing becomes more elast ic as in the above figure, the supply curve would move in the rightward care indicated by the arrow. The new supply curve will be S2. Now if we assume that the demand is unaltered then the prices would tend to go down to P3 which is a price that is higher than P1 but lower than P2. On the other, the equilibrium quantity would further move upwards to Q3 which is higher than both Q1 and Q2.