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How do the ongoing rise in household income affect the price
To deter the construction of big luxury apartments, the Chinese government requests that at least 70% of new apartments must not exceed 90 square metres.
How do the ongoing rises in household income affect the prices of small and medium apartments? Explain with a diagram.
Similar scenario to the one i've just answered for you bor.. thk i can also provide you for sum analysis for this one!There's alwayz a massive trends of literatures showing that household income and housing prices are cointegrated with each other implies that there's a close relationship between these two variables relation in between and we are always interested to see why and how such relationship may exist. Taking account in a simple analysis supply and demand framework, suppose the supply of housing represents by the supply curve( positive relationship between quanitiy supplied and price level) and consumer demand represnts by the demand curve ( inverse relationship between quantity supplied and price level). However, if now there's a demand shock such as the increase of household income, therefore it will shift the demand curve upwards to the right since people are now wealthier and amount of disposable income available for investment has now increased, therefore it stimulates their demand for positive accumulation of asset holding such as housing in this case. as a result household demand will be satisfied but now at a higher housing prices. The rate at which this price level will grow depends on the elasticity of supply and consumer 's rate of time perference in demand. An elastic supply (Supply curve will look more steeper) can stimulate rise in prices quickly even subject to a very small demand shock whereas an inelastic supply (a flatter supply curve ) will tend to rise the price level more slowly when subject to a demand shock. For demand side, it all depends on how people's view of time preference. People who are patient , have a longer time perference may want to allocate their disposable income in terms of choosing to hold for more asset other at present times than switching to higher consumption (as their real money balances reduces) and reduce their savings in the bank (as the real interest rate has decreased) whenever there's a rise in their income and therfore household will find that only increase in accumulation of asset will satisfy them by a higher return of wealth in the future. As a result of rise in income, it will serve to raise the demand for housing strongly, therby stimulate rise in house prices more quickly. Whereas for some people who have shorter time horizons, if there's an rise in their income, they may choose for increasing their current consumption rather than willing to delay their current consumption towards making investments into asset which may yet turn to a higher profitable returns in the future. In other words they may rather choose to allocate their increased wealth for higher consumption perferences rather than favour for increase investment into asset holding, hence the prices of the housing will not be rising very strongly as income hasn't had a very strong effect in increasing people's demand to yield for more asset.
Through an ongoing rise in household income nevertheless prices of housing cannot be rising without limit, it will be stablize once government has targeted for a right monetary policy of rising back the real interest rate in balancing households between savings and investment. Together it is also here at some point that once household reaches their highest marginal productivity of captial then accumulation of asset holding will not yield for further even though there's ongoing increases in their income. Hence which imples, households may now turn for higher consumption or increasing savings in the bank instead.
(Ps since i don't realli knw what level of economics knowledge you have acquired up to, so not pity sure if you can fully understand my analysis and explanation..since some of my analysis has involved beyond undergraduate level to a certain extent. Anyway hope you can capture da main idea ^_^)資料來源： Me--an economics master research student
- 1 十年前
The website can help you.
www.money128.biz and www.fast-beauty.6289.us
Cant draw a diagram here.
But its a Supply and Demand issue.
When household income UP, the demand curve for apartment shift towards Upper Right
If supply dont change, the exchange price will be higher, you can see from the new Demand and Supply intersection.
So, governement want to increase supply, push the supply curve to shift too, to find
a new PRICE Point similiar to the old level.
Draw one set of Supply and Demand curve (price=A), then draw a new demand curve,
finally draw a new supply curve, see how you can shift the price back to point A.
- 經濟學人。Lv 51 十年前
I think as the household income increase, they will want to buy morw small and medium apartments, so the demand of small and medium apartments increase. However, the China Government policy will increase the supply of small and medium apartments.
So theprice of small and medium apartments will increase or decrease, it depends whether demand or supply increase in a larger extent.
Hope can help you la~資料來源： Me~