Microeconomics Case Study

Would Housing be a Dream in the Dream City of India?

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Abstract:
This case presents housing supply scenario in Mumbai and quizzes why increased supply of houses in response to high prices has not subdued the latter. In the process it helps in analysing the shape of supply curve and the difference between change in quantity supplied and change in the whole supply. Mumbai is one of the most expensive cities in India to either rent or buy a place. There is a huge demand and supply mismatch in the housing sector, with demand outstripping supply of houses. This resulted in sky rocketing house prices. As prices of houses zoomed, the developers - in their bid to reap the benefits of high margins - endeavoured to augment the supply of houses. The high density of population in Mumbai has almost exhausted the avenues of enlarging the supply of houses. Constructing houses in the outskirts of Mumbai became the recourse. However, buying a house in Mumbai is beyond the reach of the low-income groups or even middle-income groups as most of the supply is meant for high-income groups where the developers earn maximum profits. The global recession of 2008 has, however, brought about fall in housing prices, which has made the developers of Mumbai cry a halt to the new housing projects.

Pedagogical Objectives:

• To understand the concept of supply and the shape of the supply curve
• To understand the difference between change in quantity supplied and change in supply.

Keywords : Supply, Supply Curve, Concept of Supply, Supply Schedule, Shape of Supply Curve, Movement vs Shift in Supply Curve, Change in Quantity Supplied vs Change in Supply, Price Elasticity of Supply, Managerial Economics, Microeconomics, Economics for Business, Business Economics, Economics for Managers, Paul Samuelson