“In the first quarter of 2010, the market for private homes in Singapore saw a record breaking prices and transaction volumes, prompting calls for government intervention to cool the market. ” Using economic analysis, explain the reasons for the “record breaking prices and transaction volumes” for private homes in Singapore. Private homes in Singapore seeing a record breaking prices and transaction volumes is due to the actions of both the consumers and the producers, which will cause a shift in the demand and supply and hence there will be an impact on the output and price.
Demand refers to the different quantities of a product consumers are willing and able to buy at each possible price during a given period of time, coteries Paramus. While supply refers to the various quantities of a good a producer is willing and able to offer for sale at a given set of prices over a period of time in a given market, coteries Paramus. Shifts in both demand and supply occur due to a chance in the non-price determinants that affect both. The reason for private homes seeing a record breaking prices and transaction volumes are due to this change in the non-price determinants which affect demand and supply.
This essay seeks to explain how these changes impact the output and price of private homes in Singapore. An increase in output and supply is due to an increase in demand. This is because when there is an increase in demand, producers are pressured to increase output in order to cope with the increase in demand to regain market equilibrium. An increase in output is only possible if the price increases as well. This is illustrated in the graph below, where when the demand curve shifts from ODL to DO, the price as well as the quantity increases.
A factor that can cause this increase in demand is the increase in income among Singapore. The reason for an increase in demand for private homes could be due to the fact that there is a growing affluence among Singapore, and hence private homes are becoming increasingly affordable for many Singapore. As the income of Singapore increase, they will want to own a private home. Thus, the demand for private homes will increase as it becomes more affordable, more Singapore would opt to buy private homes.
Another possible reason for an increase in demand could be the increase in the market for private homes in Singapore. As the population in Singapore increases, with the influx of foreigners migrating to Singapore and their need to find a place to settle down in Singapore, the market for private homes will also increase. This in turn increases the competition to purchase private homes in Singapore, and thus the demand for this good will subsequently increase as well as the number of people wanting to purchase private homes continues to increase while the output remains the same.
Hence an increase in market will cause the demand to increase as well. An increase in output and supply can also be due to an increase in supply. As seen in the graph below, when the supply curve shifts from SSL to SO, price as well as output increases from its original point. A factor that can cause this increase in supply is an increase in the number of producers. As the demand for private homes increases, the number of producers for this good will increase as well.
This is because when the market gets Cons Market Structure By Tests-Oh he market is hot and when there are many people who are willing to pay high prices for said goods. Hence, this will cause the supply to increase. The combined effect of the increase in both demand and supply can be seen from the graph below, where there is a definite increase in output, from IQ to SQ, but the price of the good is indeterminate. This is because while the demand for private homes may be increasing at a constant and fast rate, the increase in supply may not be increasing at the same rate.
This is especially seen in this market, as houses take a while to lid as compared to the short amount of time needed to purchase a house. Hence, the demand for private homes will definitely increase at a faster rate than the time taken for more private homes to be built in order to cope with the demand. Hence, price will be indeterminate. The demand and supply will continue to change and affect each other until it reaches a stable equilibrium. This equilibrium is known as the market equilibrium, and is denoted in the graph below as M.
At market equilibrium, the price at which the quantity demanded by the consumers is equal to he quantity supplied by the producers. When this occurs, the price, previously indeterminate, can be calculated and it will stay at this price until there are further shifts in the demand and/or supply curve. In conclusion, the private homes’ prices are largely determined by the market forces of demand and supply, and the rising trend of prices can be seen in the changes in the demand and supply factors in the market for private homes, and that is what caused the record breaking prices and transaction volumes.