Economics for Business

NB Use ONLY the following sources of information Text Books from module reading list Economics on line- Pettinger ACDC Economics- Mr Clifford Investopedia The Guardian newspaper FT newspaper ONS Government statistics Any sources used outside of the above may be subject to investigation for plagiarism

Economics For
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Factors that affects or influence price of private housing with the help of Demand & Supply
graphical analysis........................................................................................................................1
TASK 2............................................................................................................................................7
Governmental and economic policy that developed to influence the demand for private rental
housing in the UK.......................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Economics is the study through which usage of limited resources in the society is
measured for accomplishment of different needs. Businesses are highly influenced through
economics as demand, supply, expenditure production saving are all influenced through
economic conditions and factors in the nation. This project report is based on the analysis of
main factors for determination of prices of private rental housing in United Kingdom (Achim,
Borlea and Mare, 2016). Together with this various governmental policies that influences the
demand for private rental housing in UK is elaborate in the project report. All these analysis are
made to make a clear estimation of demand and supply in the economy so that organisations
policy can be established to generate maximum revenue. These analysis are demonstrated
through various examples and graphical representations.
TASK 1
Factors that affects or influence price of private housing with the help of Demand & Supply
graphical analysis
The concept of demand and supply is important for business organisations and there are
number of factors that directly or indirectly affects demand and supply in the market. Pricing of a
product have a grate impact on demand for goods and services and there are number of factors
that affects pricing of goods and services offered. Estimation of demand and supply helps
business organisation to prepare and assist in various factors to become more competitive as per
the present market scenario. Concept of law of demand and factors affecting demand of rental
housing in UK is defined as follows-
Law of Demand: Their are number of factors affects demand for goods and services in
the market. Law of demand keeps all the factors constant reflects a relationship among price and
the quantity demanded (Law of demand, 2019). This law defines that demand and price of any
good or service possess a inverse relationship among each other. i.e. when price of goods and
services will move upward then demand for goods and services move downward and vies-versa.
Law of demand helps to schedule the market demand for various products and services at
different prices. All the factors in the market in long run reflects their positive and negative
impact on the demand of goods offered.
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The law of demand is represented through graphical representation in which X-axis
represents quantity demanded and Y-axis defines price. A change in price on Y-axis will reflect
its impact by change in quantity demanded on X-axis. Law of demand also mentioned that it is
not essential that change in price and quantity demanded will be in the same ratio. Graphical
representation of law of demand is as follows-
Source: Demand Curve, 2019
This demand curve represents that a change in pricing of private rental housing in UK
will bring change in the quantity demanded. For example- when price charge for the rental
housing was £60000 per year then demand was high as presented in the graph. When the pricing
shifts upward to £90000 per year then in that case quantity demanded become low. Pricing effect
brings one of the most visible effect through law of demand. Their are other factors that have a
grate impact on the demand of private rental housing in UK. These factors are determined as
follows-
Affordability: Rising level of income of general public enhances capacity to afford and
spend more on housing facilities available in UK economy (Athey and Luca, 2019). As
economic growth in a country leads to rise in the demand of housing facilities. Demand for
housing is a luxury facility and change in affordable capacity of an individual have a grate
impact on the demand for rental housing facilities in UK.
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Illustration 1: Demand Curve, 2019

As the income and affordability leads to generating more and more demand for housing
facilities in UK.
Interest Rates: Interest rate plays an important role in demand and supply of rental
housing facilities in UK. This is because most of the houses are purchased by taking some
amount of loan through mortgage. Availability of loans at affordable rate of interest will
motivate more and more individuals to possess their own house rather then ranting (Deloitte
Access Economics, 2017). A higher interest rate will increase demand for rental houses and low
interest rate will have a visa-versa effect. Rate of interest make the house affordable and
consumers moves towards purchasing their own house.
Population: Number of people in a country and their increasing rate affects demand for
housing facilities. A demographic change in the country also creates an impact on demand for
housing facilities. For example- when population moving to other places for employment or
education increases then demand also gets fluctuated. Certain demographic changes are- age of
people leaving home, increased life expectancy and more single individuals and rate of divorce
in the country.
Mortgage Availability: Facility for mortgage of houses available in the market through
banks and financial institutions affects demand for housing facilities in UK. As availability of
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easy financial facilities in UK will motivate general people to buy their own houses rather then
renting. So willingness of banks to grant loan facilities will have a grate impact on the demand
for rental housing facilities.
Cost of renting: This factor affects preference of consumers to buy or rent a housing
facility. When cost of renting is high then consumers shift to buy a housing property. As cost to
buy a house become cheaper then renting a property (Mankiw, 2016). For the year 2011 their
has been a increasing trend in renting cost of housing by 22%. This leads to generate a down fall
in the demand for renting of housing facilities in UK.
Law of Supply: This of one of the important tool to identify required production to be
made by business organisation while serving consumers at large. The law of supply by keeping
all the factors constant specifies change in the quantity supplied in relation to change in the price
made. When price of goods changes then supply is affected in positive or negative manner. In
general price and supply possess a positive relationship i.e. higher prices will result in more
supply and low price will minimises quantity supplied in the market. In long run all the factors
can not be held constant as they will have a considerable amount of effect on the supply made in
the economy. In UK all the property dealers providing facilities for rental property will access
current market conditions and on the basis of their predictions supply will be made (Law of
supply, 2019).
A supply digram that reflects a graphical relationship among price and quantity supplied
is demonstrated through supply curve. A clear relation among price and supply of goods and
services will be made. Movement of supply curve through graph is represented as follows-
Source: Supply Curve, 2019
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This graphical representation shows that when price of renting a house will rise form P1
to P2 then quantity supply will also rise form Q1 to Q2. Both the terms moves in same direction
to reflect a positive relationship among price changed and supplied made. In short run this
change can be kept to pricing factor but in long run several other factors will influence supply of
rental housing facilities in UK. All the long term factors that influences supply of rental houses
in UK are as follows-
Real housing price: As per this factor real prices that an individual needs to pay to own
a house affects supply of rental houses in UK. When housing facilities will become expensive in
UK then facility for renting houses will also affected through this and it will also become
expensive (Namazi and Namazi, 2016). An upward change in price will results in minimising
supply of rental housing for higher profits in future.
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Planning Restriction: In UK government has imposed several restrictions on usage of
land. As limitations are set by the government for construction of buildings in green-belt land.
This restricts availability of land and made existing property expensive for purchase or to rent.
As construction of new building become expensive and availability of houses leads to charge
higher prices. This affects supply of rental housing property and minimises its availability in the
market.
Profitability of developing new houses: When economy of a country is growing then
profitability in developing new housing facilities also increases (Paoloni and Lombardi, 2018).
This gives rise to construction of new housing facilities to make them available for renting as a
future investment. Development of new housing facilities leads to generate more and more
supply of rental housing facilities in the market to meet the demand as per economic growth.
Supply of Housing: When the supply of housing facilities in the United kingdom will
increase then availability of rental property will also increase.
As reflected through blue line that availability of self owned houses are increasing and
this is creating a positive impact on rented private property in UK. This higher supply is creating
a grate influence over pricing of housing in UK by reducing prices of housing facilities.
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All these factors that influences demand and supply of the housing industry needs to be
considered by business organisations in order to operate for maximising profits.
TASK 2
Governmental and economic policy that developed to influence the demand for private rental
housing in the UK
All the economies of the world are controlled by different nations after analysing the
economic scenario at global level. Government of UK is involved in formulating economic
policies which will regulate rental housing facilities in the country. Formulation of these policies
are initiated to bring some change in the economy or to generate some positive results of
challenges faced by housing sector in the economy (Governmental policies, 2020). Demand and
supply analysis and various factors affecting demand and supply are considered as a basis for
development of various governmental policies. Government of UK in order to present effective
management of demand and supply of private rental housing facilities implemented monetary
and fiscal policies. These two policies helps government to stabilises demand and supply ratio in
the housing industry so that pricing can be managed. A detailed discussion of monetary and
fiscal policy is presented as follows-
Monetary Policies: Policies which are related to management of financial facilities in
country are termed as monetary policies. Formation of these policies in UK is the responsibility
of the Bank of England's Monetary Policy Committee. Their are nine members in the committee
and four of them are appointed by Chancellor. The committee possess a common goal to hit the
inflation target of 2%. The monetary policies involves interest rates and other monetary tools to
influence consumers spending and aggregate demand in the economy. When demand in the
economy for housing facilities is low the government monetary polices implement low interest
rate polices on loans for housing. This law interest rate increases consumers spending and
investment to avoid recession. When the case is opposite then higher rate of interest is charged to
reduce the demand and manage rate of inflation. When availability of funds in the economy is
inappropriate then government through monetary policies increases money supply in the
economy to enhance demand and investment. When availability of higher funds is their in the
economy government policies helps in decreasing money supply in the economy to manage and
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control demand. This will help in managing rate of inflation and also recession can be avoided
with a appropriate balance.
Fiscal Policies: These are the policies through which government adjust their spending
levels and tax rates to monitor and influence a nation's economy. It is considered as a sister
policy of monetary policies through which government of UK and central bank influences supply
of money in the whole economy (Parker, 2018). Fiscal policies are important for promoting
stability by sustaining aggregate demand and private sector income during an economic
downturn. Fiscal policies involved in changing the level of taxation and government spending to
influence the rate of economic growth. Expansionary fiscal policies are used to stimulate
aggregate demand and boost rate of economic growth of the nation. Through these policies focus
is created on higher spendings, lower taxes and higher government borrowings through
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availability of easy loans. This policy is used in the period of recession. Deflationary fiscal
policy is used when aggregate demand is high and rate of inflation is increasing in the economy.
Application of higher tax rates and low amount of government spendings are initiated as per this
policies. Availability of loan form government are minimised so that amount of government
borrowing get reduced.
Some other policies that influences demand of rental houses in UK's private sector is as
follows-
Landlord Rights: In order to bring a certain among of stability in the pricing of rental
housing facilities in UK introduction of Landlord rights are made. In this policy certain rights are
made reserved for the landlord and for tenant. When certain rights such as a pre notice to vacant
the property and stable rent for a specific time duration will help to enhance demand for rental
property in UK.
Public Housing: Government of UK made certain policies and regulations in order to
control the activities in public housing (Putra, 2019). When government regulates purchase and
sale of houses in UK then a grate impact can be made to influence demand and supply of housing
facilities. Government can directly restrict public housing in a particular region so that demand
of rental housing facilities can be enhanced. When public housing is restricted then demand for
housing facilities on rental basis will increase.
All these governmental policies helps to manage and regulate demand and supply of
rental housing facilities in UK. Application of these policies are based on analysis so that all the
factors are considered while making policies suitable as per current market condition.
CONCLUSION
From the above project report on economic for business it has been concluded that all the
businesses are affected with the demand and supply trend in the business industry. Their are
number of factors that affects demand and supply of private rental housing property in UK and
these factors needs to be consider to establish a positive relationship among demand and supply.
Law of demand and law of supply determines a clear effect of pricing over quantity demanded
and supplies in the market. Considering all these factors will help in managing all the resources
in the housing industry to serve favourable results. Governmental and economical policies are
designed to govern UK's economy. All these policies will help to generate a balance in demand
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and supply in the housing industry of UK. Government spendings and adjustments will
contribute towards management of economy in balanced manner.
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REFERENCES
Books and Journals
Achim, M. V., Borlea, S. N. and Mare, C., 2016. Corporate governance and business
performance: Evidence for the Romanian economy. Journal of Business Economics and
Management. 17(3). pp.458-474.
Athey, S. and Luca, M., 2019. Economists (and economics) in tech companies. Journal of
Economic Perspectives. 33(1). pp.209-30.
Deloitte Access Economics, 2017. Soft skills for business success. DeakinCo.
Mankiw, N. G., 2016. Business economics. Cengage Learning.
Namazi, M. and Namazi, N. R., 2016. Conceptual analysis of moderator and mediator variables
in business research. Procedia Economics and Finance. 36(16). pp.540-554.
Paoloni, P. and Lombardi, R., 2018. Gender issues in business and economics. In Selection from
the 2017 IPAZIA Workshop on Gender, Springer Proceedings in Business and
Economics.
Parker, M., 2018. Shut down the business school. University of Chicago Press Economics
Books.
Putra, Y. M., 2019. Analysis of Factors Affecting the Interests of SMEs Using Accounting
Applications. Journal of Economics and Business. 2(3).
Online
Law of demand. 2019. [Online]. Available through:
<https://www.investopedia.com/terms/l/lawofdemand.asp>
Law of supply. 2019. [Online]. Available through:
<https://www.investopedia.com/terms/l/lawofsupply.asp>
Governmental policies. 2020. [Online]. Available through:
<https://www.ons.gov.uk/economy/inflationandpriceindices/articles/
ukprivaterentedsector/2018>
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