Tag: price elasticity of supply

According to both the Lloyds Banking Group’s Halifax price index and the Nationwide Building Society, the annual rate of decline in house prices is reducing and the three-monthly figures now show a small increase in house prices. So does this mean that the housing market is now recovering?

The Centre for Economics and Business Research (CEBR) is forecasting a rise of 2 per cent in house prices between the end of 2009 and the end of 2010. Other forecasters are predicting higher price increases. Part of the reason lies on the demand side, but part also lies on the supply side. The following linked articles explore these determinants of demand and supply.

UK house prices: has the great recovery started? Telegraph (10/8/09)
House prices to fall another 3 per cent this year before modest recovery in 2010 Telegraph (10/8/09)
Edmund Conway: Sorry – the house price crash isn’t over yet Telegraph (10/8/09)
House prices buoyed by property shortage Guardian (5/8/09)
Autumn casts shadow over 1.1% house price rise Times Online (5/8/09)
Surveyors predict house prices this year will end higher than in 2008 Guardian (5/8/09)
Property taxes could help stabilise the housing market Guardian (10/8/09)
Toby Lloyd: Don’t bet the house on it: No turning back to housing boom and bust Compass (April 2009)

House price data can be found at:
Halifax House Price Data Lloyds Banking Group
July 2009 House Prices Press Release Nationwide

Questions

  1. Identify the determinants of demand and supply that are likely to affect the price of houses in the coming 12 months. Use a diagram to illustrate the effect on house prices.
  2. What is the relevance of the price elasticity of demand and supply of houses in explaining the magnitude of the predicted price movements?
  3. What effect is speculation likely to have on the price of houses?
  4. Assess the suitability of property taxes as a means of stabilising house prices (see the final Guardian article and the Toby Lloyd article).

On 10 August the world sugar price reached a 28-year high. The price has risen by 88 per cent since the beginning of the year and 20 per cent in just the previous two weeks. The following articles explain why sugar prices have soared and examine the implications for the future.

Sugar Rallies 40% in Options Pointing to 1981 Peak Bloomberg (10/8/09)
Sugar hits 18-year high on drought threat Financial Times (10/8/09)
Sugar prices head towards the sky Financial Times (28/7/09)
Sugar price reaches 28-year high BBC News (10/8/09)
Food Companies Ask USDA to Boost Sugar-Import Quotas Bloomberg (7/8/09)
Sugar Monthly Prices Index Mundi

Questions

  1. Using a supply and demand diagram explain why sugar prices have risen recently. Distinguish between shifts in and movements along the demand and supply curves.
  2. What is the relevance of the price elasticity of demand and supply of sugar in explaining the magnitude of the price movements?
  3. What factors are likely to have the biggest influence over movements in the price of sugar over the coming months?
  4. How is speculation likely to affect (a) the volatility and (b) the level of the price of sugar over the coming weeks?