ECONOMIC PRINCIPLES AND DECISION MAKING: MICROECONOMICS SIGNIFICANCE

Running head: ECONOMIC PRINCIPLES AND DECISION MAKING: MICROECONOMICS
Economic Principles and Decision Making: Microeconomics
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ECONOMIC PRINCIPLES AND DECISION MAKING: MICROECONOMICS1
Table of Contents
Introduction......................................................................................................................................2
Housing market scenario in Australia..............................................................................................2
Dynamics of demand and supply related to housing market...........................................................4
Demand........................................................................................................................................5
Supply..........................................................................................................................................7
Demand and supply elasticity of houses..........................................................................................9
Prices of houses: analysis using demand, supply and elasticity....................................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

ECONOMIC PRINCIPLES AND DECISION MAKING: MICROECONOMICS2
Introduction
The branch of ‘Microeconomics’ deals with behavior of firm and individual and analyzes
decision making process related to allocation of scarce resources. The study concerns with the
behavior of a single market in the economy (Fine, 2016). Aim of the report is to describe one of
the current economic issues of Australia using microeconomics perspective. Variation in housing
prices at different time is one of the major concern for the economy. Higher price of houses
makes it difficult to afford houses in Australia especially in capital cities. The report has viewed
the housing market from a macroeconomic perspective. Similar to the analysis of individual
market, the analysis is limited to microeconomic analysis of demand, supply and elasticity of
housing market. Movement of prices are explained using the demand and supply of housing. The
report discusses various factors affecting supply and demand of houses in Australia. Besides
supply and demand another microeconomic concept that is discussed is elasticity of supply and
demand. Finally, price movement of price in housing market is modelled with the combined
concept of demand, supply and elasticity.
Housing market scenario in Australia
Fluctuations in housing prices is one of the major issues affecting Australian economy.
Given volatility of housing market, Australians closely watch the movement in the housing at a
more intensive way compared to any other nations in the world. Five years prior to latter half of
2017, housing market experienced a steady rise. Housing price during this period rose by nearly
50 percent (Lowe, 2019). However, since 2017, housing price began to decline at an average rate
of 9 percent. With this prices were brought back to the level where it was in the middle of 2016.

ECONOMIC PRINCIPLES AND DECISION MAKING: MICROECONOMICS3
Figure 1: Trend in national house price index
(Source: Lowe, 2019)
Sudden decline of housing price by this magnitude though is unusual but are not
unprecedented. Between 2008 and 2010, housing market experienced a similar downfall. The
declining trend was even deeper during 1990s.
There exists significant variation in housing price across different cities of Australia.
Unaffordable housing price is more prevalent in capital cities especially in Sydney and
Melbourne. Similarly housing market in the two cities were affected more in these two cities
compared to others (Paris, 2017). In Darwing and Perth housing market experienced some down
fall in the recent years. Hobart in contrast has gained a strength in the housing market. Overall
housing market in Australia is made with several separate however interconnected market.
Despite cooling down of housing market in two of major capital cities of Australia,
Sydney and Melbourne, Australia ranked nearly top in the list of global housing unaffordability