AQA Economics AS Mon 14 June AM

Yes, how do I write more than 4 lines for each point for and against an argument?

And how on earth can we answer this housing question that came up in Jan 04:

Explain how oppurtunity costs can affect thhe housing market.

THis was 8 marks... what a totally dumb question? Oppurtunity cost is a defenition, a way of measuing losses in real terms I think, so it doesn't affect the housing market, it's just used to analyse it!

So annoying... 8 marks for such a stupid question..

Reply 2

mik1a

hmm weird one, maybe as house prices increase, the opportunity cost of buying a house increases...and vice versa....something along these lines? then you can talk about negative equity...etc.

Reply 3

username3134

They're referring to housing as a form of investment here. The most obvious opportunity cost is investing in shares. It is often helpful to refer to recent FTSE performance, and how this would have affected the opportunity cost of housing.

Reply 4

mik1a

opportunity cost is the price of forgoing one gain in preferance to another. During a recession, the opportunity cost of buying a house, for example, is less savings in times of increased uncertainty.

Presumably during a recession, your wages fall and more people are unemployed, the the opportunity cost of purchasing a house is greater (less discretionary income, money needs to be spent on other goods rather than a house). This is why the housing market suffers during a recession.

Reply 5

Actually waht the hell is oppurtunity cost??

If you chose to buy a pen instead of a pencil, the oppurtunity cost is what? The cost of the pencil, or the difference in the price between them?

Reply 6

savvy10

so the opportunity cost is money foregone, which couldve been used in ninvesting shares right?

Reply 7

mik1a

Actually waht the hell is oppurtunity cost??

If you chose to buy a pen instead of a pencil, the oppurtunity cost is what? The cost of the pencil, or the difference in the price between them?

In your situation the opportunity cost is the pencil :smile:

Reply 8

But if the pen becomes more expensive, the oppurtunity cost gets larger doesn't it? However the pencil's price stays the same.

On the other hand, if the pencil becomes cheaper, the oppurtunity cost becomes smaller.

Contradiction or waht.. you see why I'm confused..

Reply 9

Mysticmin

In your situation the opportunity cost is the pencil :smile:

is that the only opportunity cost?

Reply 10

mik1a

If you can only buy the pen or the pencil, then the opportunity cost of buying the pen is the pencil, no matter what the price.

If you had a choice of going to spain on holiday or the carribean, and you go to the carribean, the opportunity cost is the holiday to spain. Not the cost of the holiday to spain.

Reply 11

TheWolf

is that the only opportunity cost?

That is the direct opportunity cost, you are forgoing the pencil. Of course you could link into into other things like he's forgoing drawing sketches of the eiffel tower but I don't think that's necessary :smile:

Reply 12

username3134

No, there are is a huge number of other goods you could have purchased as well. The main opportunity cost here though is other investment products. Shares are the prime example, and easy to do. You can also talk about redcued consumption spending as well, but you want to focus on substitute goods or services foregone.

Reply 13

Mysticmin

So the oppurtunity cost as actually not a cost... it's just defined as the next best alternative that you sacrifice... not the price of it, or the benefit you give up..

Thanks, this is beginning to make sense, but I've sure I saw a MCQ where we had to say the oppurtinuty cost of an increase in x was the change in y produced on a PPC.

So If I chose the holiday to spain, the oppurtunity cost is the holiday to the carribean? What fool called it a cost then? :confused:

Reply 14

mik1a

That's nearly the textbook definition - the next best alternative forgone! lol, no idea, he might prefer boozing in pseudo british spain.

Reply 15

savvy10

huh why reduce consumption spending? after buying houses leads to more consumption through buying goods such as carpet and kitchen...etc + equity withdrawal leads to increase in C?

Reply 16

TheWolf

huh why reduce consumption spending? after buying houses leads to more consumption through buying goods such as carpet and kitchen...etc + equity withdrawal leads to increase in C?

buying houses reduces your monthly income, through mortgages, so you have less to spend on other consumer goods. It decreases your discretionary income (income after taxes, bills etc). With the exception of goods listed under autonomous expenditure, most goods are income elastic.

the evaluation point is that the housing market during a boom also causes a wealth effect, causing people to spend more. An example is the increase in UK personal debt, people borrow against the value of their house because they feel richer.

Reply 17

OK quick housing market revision:

How house prices affect the economy:
- goods that are on the price index used to measure inflation, such as estate agents, DIY products, and mortgages also rise in price with a house price rise.
- the wealth effect and boosts in consumer confidence, two factors of consumer spending can be changed by variations in house prices - if house prices rise, people withdray equity, have good consumer confidence and spend lots.

Reply 18

username3134

Yes, I specifically meant reduced retail expenditure, sorry if that was unclear.

Reply 19