House prices

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:

Property owners

First time buyers

Those living in rented accommodation

The rest of the economy

Question 2

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)
50010002400
45012502300
40015002200
35017502100
30020002000
25022501900
20025001800
15027501700
10030001600
  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?