Question 1

With the help of a diagram:

1. Explain the likely circumstances in which house prices might fall

2. Analyse the likely impact of this fall on:

1. Property owners

2. First time buyers

3. Those living in rented accommodation

4. The rest of the economy

Question 2

1. House prices Consider the information contained in the demand and supply schedule for new-build houses, and answer the questions that follow.

   HOUSE PRICES £000 DEMAND (000) SUPPLY (000) 500 1000 2400 450 1250 2300 400 1500 2200 350 1750 2100 300 2000 2000 250 2250 1900 200 2500 1800 150 2750 1700 100 3000 1600

1. What is the current equilibrium price of houses?

2. What would be the likely effect of the government imposing a maximum price of £200,000?

3. What is the likely effect on house prices of a fall in interest rates, which increases demand by 10% at each price?