Introduction to Economics Essay

The variation in the price of the houses from various cities can be attributed to many different economic factors that could affect the price of the commodity or merchandise. There are sometimes other indirect factors that affect the price of a commodity or merchandise, like the rising of the price of crude oil. Crude oil serves as an input for most of the industries in our economy, and thus, if the price of the crude oil increases, commodities that use crude oil as a part of the production costs would also have to increase so as not to affect their revenue. Well of course in this paper; we are going to give more attention on the reason behind the differences in the prices of houses on every city as well as finding the root of the problem. Based from realtors. com, I observed that houses with the same number of bedrooms and bathrooms differ in terms of prices (realtor. com, 2007). As I analyze the given data on the site, I come up with the following possible answer to the problem. The reason behind the differences in the prices of houses from city to city is based on the type of living that the city has. The higher the standard of living would mean that the citizens there are more capable of buying expensive houses or appliances. Whereas, those cities that has lower standard of living denotes that the person living in those place has a lower â€Å"willingness to pay† than with the higher standard of living. Because of this, the firms in the city with lower standard of living would be forced to set their prices reasonable to maintain their market share. Another reason would be, those cities with lower standard of living has only a simple design for their houses as compared to those people living in the â€Å"rich† city and because of this, only those â€Å"rich† cities can afford to buy such beautiful house. With this, raw material in making the house become expensive to match the kind of living the citizen has. 2] The Effects of Supply and Demand If we are going to graph demand and supply, we could see that the demand is downward sloping and supply is upward sloping. Refer to appendix page, at first when there are no distortion in the economy happens, the supply and demand for houses are in the equilibrium [the intersection of Po and Qo. Now suppose that the demand for houses increased due to higher incomes of the citizen, then, the demand curve will shift to the right while maintaining the original supply curve. With this, we now arrived at a higher price level (Zilberman, 2002). It is logically for the house producers to increase their prices because people demand more of houses and they can afford to buy houses even if you raise your charge. Now let’s go back to the equilibrium position, as for the effect of supply on prices, suppose that the firms can now produce more houses because they become more competitive and efficient, with this, the supply curve will shift to the right while maintaining the original demand curve. As we can see in the graph, the prices now decreased due to the inverse relationship of demand to supply (Zilberman, 2002). According to the law of supply, if the supply of a certain commodity increased, its demand would go to fall. This is the reason why demand is downward sloping while supply is upward sloping (investopedia. com, 2007). Well, it is rational for the producers to lower down their prices to attract more customers to purchase their surplus in the production since they produce more than the needed number in the market. In short, the effect of demand to prices would be positive and negative for supply; this is based on the producer’s point of view most of the relationships here would be reversed if we would use the point of view of the consumers. REFERENCES investopedia.com. (2007). Economics Basics: Demand and Supply [Electronic Version]. Retrieved August 19, 2007 from http://www. investopedia. com/university/economics/economics3. asp. realtor. com. (2007). Home Plan HPG-1855 Details [Electronic Version], 1. Retrieved August 19, 2007 from http://www. homeplans. com/exec/action/plans/browsemode/details/filter/PlnID. 24346/hspos/hsnet/page/1/planid/24346/section/homeplans. Zilberman, D. (2002). Market Policies and Incentives [Electronic Version], 1. Retrieved August 19, 2007 from http://images. google. com. ph/imgres? imgurl=http://are. berkeley. edu/courses/PMB10/fall2005/Lecture19files/Lectur17. gif&imgrefurl=http://are. berkeley. edu/courses/PMB10/fall2005/Lecture-19. htm&h=487&w=576&sz=6&hl=en&start=18&tbnid=5Ht0lrADVcB2LM:&tbnh=113&tbnw=134&