Question 2

Question 2 (a) Utilise the demand-supply market models (for each market below) to graphically illustrate the following scenarios (in the short run). Identify for each scenario what the effects on price and quantity are likely to be (4 marks) () The market for industrial land if local councils decrease the developer charges on this type of development. i) The market for rented accommodation if there is a housing subsidy for low income households. ii) The market for the outer suburbs houses as the transport link between city and suburbs improves. Show on the diagram and explain how the price and output effects vary according to whether the supply function is very elastic or inelastic. (b) The market demand and supply for 3-bedroom houses in a small town per annum are summarised by the following relationships, where Q is the number of houses (6 marks) Demand = $500,000 - $7,500Q. 2 Supply = $400,000 + $12,5000 ( What will be the market price and annual number of sales at equilibrium? (Hint: use a spreadsheet to calculate the expected supply and demand prices when Q = 1, 2, 3, etc, and identify when the calculated prices are equivalent). ii) What is more elastic, demand or supply? Show calculations. iii)Using a diagram, explain the change in equilibrium if government provides a subsidy of $80,000 to the developer for each house built