Select a market for a product or service, then identify at least one critical de

Question

Select a market for a product or service, then identify at least one critical determinant of demand or supply in that selected market and forecast a reasonable future change in the determinant. These "determinants" are also called "shifters" in our textbook. Explain the changes in equilibrium price and quantity you expect for that market. A graph is not required, however, it is helpful and illustrative that you fully comprehends this week’s material.

Hint: To economists, the word “determinant” has special significance.

Explanation / Answer

Expectations-(Determinant of demand)- When persons expect that the worth of something will increase, then they demand more of that item. This clarifies the housing bubble ( 2005). Prices of real estate rose, but individuals bought more as they anticipated the price will continue to rise.This caused the demand curve to move outwards. This pushed prices even further till the bubble exploded in 2006. From 2007 to 2011, housing prices dropped 30 %. But the quantity demanded did not rise . Why? Individuals expected that the prices will continue dropping. This was on account of highest ever levels of foreclosures taking place in the market.

From the above explanation we can say that expectations is an important demand shifter in the real estate sector.

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