The Supply And Demand Curves Of Apartments Economics Essay
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Published: Mon, 5 Dec 2016
Let us figure out the supply and demand curves of apartments in a graph where we get the price of apartments on the vertical axis and the quantity of apartments on the horizontal axis. Generally, we say generally because sometimes the government intervenes in the housing market, the selling or renting price of apartment is determined by the equilibrium between the quantity supplied and quantity demanded. If the quantity supplied of apartments is greater than the quantity demanded (surplus of apartments), then a pressure to down the market price will exist so as to reach a clearing price for the market. If the quantity demanded for apartments is greater than the quantity supplied (shortage of apartments), thus a pressure to up the market price will exist and finally a clearing price of the market will be attained.
The housing market can also be affected by variables other than price-variable. The supply and demand curves of apartments can move up or down. Let us start from an equilibrium housing market and consider a recent government financial help program easing the acquisition of new apartment. The demand for apartments will increase. On a graph, we imagine the demand curve shifts right upward. Hence, at short-term, the housing market price will increase and entrepreneurs will make increasing profits. New firms will enter the market so as to benefit from profits. Doing so, supply of new apartments will increase and housing price market will get down. At long-term, the housing market price will return to its initial equilibrium value where the entrepreneurs did zero economic profits. The final results of those moves of the demand and supply curves in the housing market will be an increasing quantity of apartments at the market price of zero economic profits (Notice that firms can realize accounting profits at the market price of zero economic profits). So, we have just seen that a governmental program that would help consumers to acquire an apartment can make shifting the housing demand curve. An increasing number of housing entrepreneurs will generate a shift of the housing supply curve. Thus, housing demand and supply curves can be affected by different types of variables (increase of taxes; increase of householdâ€™s wealth; and so onâ€¦) that will make changing the market price of apartments.
The equilibrium price (clearing price) of housing market corresponds to a value where consumers and suppliers agree respectively with the money to pay and the money to receive. Sometimes, some consumers are unable to get apartment at the market clearing price. We have to remember that entrepreneurs are in the market to make profits and the price they will ask for the apartments will correspond to the highest they can obtain from consumers they are able to pay for. Everybody needs to be housed. The government will then intervene for helping consumers unable to get apartment. We have seen above that the government can implement a financial help program to consumers for increasing accessibility to housing. But, sometimes government intervenes legally and fixes a maximum price that apartments can be sold or rented. That maximum market price is called a ceiling price.
The ceiling price in the housing market creates advantages and disadvantages. The main advantages are the breaking up of speculation over the market price of apartments and give possibility to excluded consumers from housing market to get an apartment. The disadvantages are entrepreneurs becoming less interested on supplying apartments and investing in the existing apartments at the legal ceiling price because they do not get the return on their investment they would like to obtain. Consequently, the quantity supplied of apartments will decrease and the existing apartments will become more and more dilapidated. The question of imposing a ceiling price in the housing market is supported by some economists but some do not. Some recent experiences of installing a ceiling price in the housing market have gotten bad results (entrepreneurs show their selling or renting price at the ceiling price policy, but, as black market activity, they verbally deal with fortunate consumers to get the apartment. So, the shown price, as sample, is $400 per month, but the fortunate person and the entrepreneur makes a black market deal of $600 per month. The official bill is written at $400 but the fortunate consumers pays under the table $200 directly to the entrepreneur. Consequently, the less fortunate consumers still get hardly access to an apartment) and, as soon as the authorities had decided to abandon that governmental policy, the housing market got back to perform based on the market forces. It seems that the ceiling price policy in the housing market can be good for some reasons for some time for particular areas during a particular economic period and, for some other reasons that policy is not suitable. The rights and wrongs of the ceiling price policy are not completely clear today.
We can summarize the housing market by telling it is a monopolistic competitive market. The variation of the market price of apartment can create a surplus or a shortage of apartment. Price disequilibrium of the housing market will be moved by a down or up pressure for getting back to the market price equilibrium. The demand and supply curves of housing market can move up or down through influence of external variables such as governmental financial help program or as an increasing number of housing entrepreneurs in the market. The government can intervene into the housing market by legally implementing a ceiling price policy. Doing so, the ceiling price generates advantages and disadvantages into the market. On one hand, the entrepreneurs reduce their supply of apartments and decrease their investment for renewing the existing apartments; on the other hand, less fortunate people get access to an apartment. But, black market activities can intrude the market. Some economists support the ceiling price governmental policy, others do not. The question is still on discussion today. Recent events have demonstrated that ceiling price is a bad policy in some circumstances whereas it is good in some others. It appears that a ceiling price policy could be favorable for a particular economic environment and could be not for another economic situation.
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