Economics Report: Beer Price and Housing Market Dynamics Analysis

This economics report delves into the factors influencing the beer and housing markets. The first part analyzes the increasing costs of running pubs, reduced competition, and rising demand, leading to higher beer prices. It also explores the impact of homebrewing, changes in legislation, and cultural factors on beer prices across different regions. The second part examines the New Zealand housing market, focusing on the effects of low-interest rates, population growth, and credit conditions on housing demand and prices. It also discusses the impact of government policies, such as banning foreign buyers, and complementary goods, like furniture, on the housing market. The report concludes by exploring the effects of divorce and government restrictions on the housing market.

IB HL ECONOMICS 1
IB HL ECONOMICS
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IB HL ECONOMICS 2
Question 1
Increased cost of running a pub has forced many pubs out of the market. As such,
competition has reduced so the remaining pubs now charge high prices. As a result of many pubs
getting closed, the supply of pint has also reduced yet the demand is rising, this has forced the
prices to go up. Also increased cost of running a pub means increased cost of production for pub
owners and this forces them to raise the price of a pint to accommodate for the increased cost of
running a pub. The price increment of a pint is demonstrated by the fact that the operating costs
of a pub are getting more and more exorbitant. It has been attributed that one of the prime killers
is business rates referring to business expenses. The business rates have doubled in the past few
years where one of the top publicans narrated how the rates from one of his pubs have
skyrocketed from £36000 to £63000 (Feld, 2018). However, the exorbitant rent prices, employee
wages, and general increments spanning from the food and drink industry have made matters
extremely tough for the publicans.

IB HL ECONOMICS 3
Question 2
However, places such as Shropshire and Herefordshire came in as some of the cheapest
counties to purchase a beer at a pleasing price of £ 3.37 per pint. Suffolk and Surrey enjoyed
reduced prices. One of the factors may be due to the increase in the supply of homebrewers. For
instance, in the UK, the supply of beer has witnessed several changes of late which have seen
production increasing with traditional brewers and microbrewers tapping into the market (Wells,
2015). Also, an increase in the supply of brewing materials at a cheaper cost reduce the costs of
production, which will end up reducing the price of alcohol. Such an increase in the supply of
barley and reduced price of associated inputs may be attributed to a change in a season where
this time around there was a favorable season. Changes in legislation is another factor that may
have led to reduced prices in places such as Surrey and Suffolk, where they may be enjoying
reduced taxes and tax holidays.
Question 3

IB HL ECONOMICS 4
Changes in the UK legislation have made it easier for beer brewed at homes to gain
access to the market. With such changes, it means that people could brew beer at their comfort
and avail it in the market. This has led to an influx in the number of beer suppliers stirring stiff
competition among the many small players. It is evident that when supply increases, it drives
down prices, and this is one of the factors that has made pubs sell beer brewed at home relatively
cheap. Also, since the homebrewed may not be to the standards and quality of premium beer by
industry, distillers make it possible to be charged low prices for such beer.
Question 4
Culture
Different countries appreciate and exhibit different culture. For instance, a country such
as Dubai has a culture that bars people from consuming alcohol. Thus, in order to deter the
behavior of consuming alcohol which is highly detested in such a country, Dubai charges
premium prices for alcohol. The government of Dubai achieved premium prices through
taxation. The state of Dubai imposes high taxes for alcohol and alcohol-related products, and this
discourages a majority of people from consuming alcohol in bulk which is associated with social
evils.
Climate
Some countries have a great climate that favors the production of barley a significant
component in the production of alcohol. Increase in supply of inputs such as materials makes it is
easier to produce alcohol, and this will lead to an increase in the supply of alcohol, and the result
is reduced prices.
Comparative advantage

IB HL ECONOMICS 5
Some countries have a comparative advantage when it comes to producing some products
making it easier to produce alcohol at lower prices. Contrary, others are disadvantaged, leading
to high rates for the same as it becomes expensive to produce such products.
Government policy through taxation
Alcohol is classed a luxury good; thus, it exhibits inelastic demand where price
increments do not affect the quantity demand. In such a case, the government will impose taxes
on alcohol which will lead to high prices for alcohol in such a country.
Part 2
Two-bedroom semi-detached units and apartments are witnessing an increase in demand
due to change in the behavior of consumers triggered by affordability constraints. With the
increasing expectations, the growth of population is anticipated to rise, and this will trigger an
increase in demand for properties that are two-bedroom semi-detached units and apartments in
centers such as Auckland and Wellington City. Small towns across New Zealand were
experiencing robust growth and also the Southern region of the country with the inclusion of
Dunedin also recording an increase in price.
Question 1
Low interest means people can easily access loan facilities from the bank where
individuals can borrow money for investment at low rates. This, in turn, will push demand for
houses as there will be many buyers purchasing houses, this, in turn, will trigger prices to go up.

IB HL ECONOMICS 6
Population growth means that more housing units will be required to serve the increasing
number of people. Thus, population growth means an increase in demand for houses, and an
increase in demand translates to an increase in the price of housing units.
Lack of supply translates to reduced supply in the future while there will be a growing
demand due to population growth. It is the increasing demand that is responsible for high prices
in the housing market. Since the housing market will always have fewer suppliers, demand will
always exceed supply leading to excess demand, and it is such a demand that makes housing
prices exorbitant.
Tightening of credit conditions means that fewer people can access credit facilities, and
thus fewer people can borrow. This means that there is less money supply, and thus people’s
purchasing power for housing units will be reduced. Less purchasing power means reduced
demand for housing units which has the impact of lowering pressure in the housing market, thus
stabilizing the prices for houses.

IB HL ECONOMICS 7
Question 2
An increase in population growth has led to a change in demand for certain houses and
this has led to a decline in demand for certain houses thus leading to a fall in price for such
houses.
The tightening of credit conditions will ensure that fewer people can borrow money and
this will translate less demand for houses which will subsequently drive prices down.
Question 3
The New Zealand market for houses was open, but the government had to intervene and
ban foreigners from purchasing houses (Tantrum, 2018). The banning policy would ensure that

IB HL ECONOMICS 8
the New Zealanders would get fair prices for purchasing housing units. The foreigners were
responsible for skyrocketing prices, particularly in places such as Auckland. The policy aims at
ensuring that the foreigners do not outbid new Zealanders. Domestic buyers were being squeezed
out.
Question 4
Passing a law barring foreign buyers from purchasing property in New Zealand will
undermine the prices for houses which began to drop from their peak (Smyth, 2018). Such a
policy would also have far damaging consequences as it will taint New Zealand’s international
reputation as one of the countries with open economies. It will also put a limit on the supply of
houses as it will deter investment.
Banning foreigners from purchasing property in New Zealand will not make a significant
difference in the market as the economists reckon there is an acute shortage of about 100,000

IB HL ECONOMICS 9
units (Zaharia & Menon, 2018). However, raising the supply and removing bureaucracy by
catalyzing the acceptance process, facilitating consistency at Councils in New Zealand and
reducing restrictions associated with a loan to value will help buyers for the first time. Such
measures are appropriate and will assist in improving affordability in anticipation of banning
foreign investors.
Interestingly, foreign buyers only command a small percentage of the market share. Thus,
adopting a policy that bans foreigners from purchasing property plays no role in impacting the
house prices.
The housing market will now get shaped by prices set by buyers whose nationality is
New Zealand. The ban will ensure that homes are a now affordable for a majority of New
Zealander buyers as per the property market phase taking into consideration first time home
purchasers (Ninnes, 2017). Such a move will ensure that efforts are realized to develop a
productive economy through channeling capital to productive uses.
Question 5
Furniture and white goods and the houses are complementary goods where a decline in
the price of one good leads to an increase in demand for the other good. In this context, a rise in
the price of houses would lead to a decrease in demand for houses; thus, fewer houses will be
purchased. Such a decline in housing units will affect the market for furniture as demand for
furniture will go down following fewer units in the number of houses due to a rise in the price of
houses.
Question 6

IB HL ECONOMICS 10
A rise in divorce would lead to an increase in demand for houses as families will
separate. It is such separation that will command the need to have more housing units among
divorced families. Thus, an increase in divorce will raise the demand for houses which will raise
the prices of houses in the property market.
Question 7
Government restrictions may lead to land zoning. This means that there are special places
where firms can be allowed to establish their houses. When sellers realize the government is
imposing restrictions on where firms can establish premises, they raise prices for land due to
increase in demand in the areas that have been set aside for construction purposes by the
government.
Question 8
The supply of houses is inelastic as it takes time to construct houses and develop a new
property. (Watson, 2013) In the short-run, rising rents would lure people into entering the market
for house buying, and the prices would keep soaring in the short-run. In the long-term, the
number of buyers and the supply of houses will increase, this will correspond to the rising
demand and as such prices will start falling reducing the heat in the housing market.
References

IB HL ECONOMICS 11
Feld, O., 2018. The price of a pint of beer has risen by 2.5% since last year – but here’s where
costs have fallen. [Online]
Available at: https://www.thesun.co.uk/money/7185489/pint-beer-price-risen-2-5-per-cent-since-
2017/
[Accessed 24 September 2019].
Ninnes, G., 2017. QV says the flattening of average dwelling values in Auckland, Hamilton and
Christchurch is now spreading to Wellington and Dunedin. [Online]
Available at: https://www.interest.co.nz/property/89080/qv-says-flattening-average-dwelling-
values-auckland-hamilton-and-christchurch-now
[Accessed 24 September 2019].
Smyth, J., 2018. New Zealand bans foreigners from buying homes. [Online]
Available at: https://www.ft.com/content/ba4c14f0-a05f-11e8-85da-eeb7a9ce36e4
[Accessed 23 September 2019].
Tantrum, M., 2018. New Zealand bans most foreigners from buying homes. [Online]
Available at: https://www.cnbc.com/2018/08/16/new-zealand-bans-most-foreigners-from-
buying-homes.html
[Accessed 24 September 2019].
Watson, E., 2013. A closer look at some of the supply and demand factors influencing residential
property markets. [Online]
Available at: https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Analytical
%20notes/2013/an2013-11.pdf
[Accessed 24 September 2019].

IB HL ECONOMICS 12
Wells, J., 2015. How Britain became hooked on homebrew. [Online]
Available at: https://www.telegraph.co.uk/men/the-filter/11803139/How-Britain-became-
hooked-on-homebrew.html
[Accessed 24 September 2019].
Zaharia, M. & Menon, P., 2018. Ban on foreign buyers seen poor answer to New Zealand's
housing shortage. [Online]
Available at: https://www.reuters.com/article/newzealand-politics-housing/ban-on-foreign-
buyers-seen-poor-answer-to-new-zealands-housing-shortage-idUSL3N1WZ20Q
[Accessed 23 September 2019].