Question

1) Housing Prices in Melbourne discuss some of the welfare implications (think of consumer and producer surplus) of changes in housing prices.

Answer 1

The changes in housing prices have effect on the economy. The major affect is on the consumer spending as it alters the thinking and hence the consumption patterns of the consumers.

Rising housing prices means that the overall economy is in boom period as the markets are flourishing. Thus the consumers spend more and it leads to more economic growth. A positive change in housing prices gains consumers confidence and hence leads to higher economic growth. However, increasing house prices also affects the wealth distribution in a nation as those who own a house already flourish from the increase and those who don't have to spend more to buy the same house.

The producer surplus sees no major change as the demand for houses falls when prices increase  as the poor and those who cannot afford such high prices do not demand the house anymore. Thus the producer has to reduce the supply of the good.

The welfare implications of changing housing prices is altogether positive of the change is positive i.e. prices rise. This is because the consumer gains confidence about the market and hence spends more and leads to growth in the economy However, when the change is negative, the consumers loose confidence about the market and hence start spending less leadng to fall in economy growth of the nation.