ECONOMICS

The London Housing Benefit: Economics

The London Housing Benefit: Economics

Introduction

London offers benefits to people who work but do not earn enough to make ends meet. This is known as housing benefit where the State offers certain subsidies to people with annual income below a certain amount. Over the last few years, the applicants for such subsidies have increased by almost 50%. Numerically, the biggest rise was noted in Brent with the number of claims for such benefits reaching almost 5760 applications. Enfield saw an increase of 2,010 households to 6,540 (44%), Ealing witnessed an increase of 1,910 to 6,090 (46%), Newham an increase of 1,690 to 6,560 (35%) and Barnet an increase of 1,570 to 6,300 (33%). The biggest percentage rise was of 50% in Bexley, where the number of claimant households rose from 1,050 in May 2010 to 1,580 in January 2012 (Hill, 2012).

The supply and demand model & the London property market

The mismatch between demand and supply is shown to be the major cause of supply chain problems. Excess supply may lead to high inventory levels, underutilized personnel and excess capacity in manufacturing and service systems, which in general indicates wasted resources (Rugman, 2006). Excess demand, on the other hand, results in lost sales, delayed deliveries, customer dissatisfaction and is typically considered to be forgone profit opportunity. In academic literature, a traditional method to tackle this imbalance is to match the supply to the exogenous demand that is assumed to be unalterable by the companies (inventory ordering policies, location and capacity selection as well as scheduling models). The influence of prices on the demand for goods and services can be observed on many real life cases (Young, 2008).

In 2006, Nintendo increased the Wii prices short time after the product is released to keep up with the underestimated demand. Adversely, Microsoft reduced Xbox prices to reduce the high number of products in retailer inventories. Over the last century two most important tendencies among the many schools of economic thought have completely dominated the debate. On the one hand a laissez-faire, neoclassical point of view has galvanized a more apologetic interpretation of capitalism. It presents the market economy as a perfect and self-regulating system that is always in, or converging to, general equilibrium. Supply and demand forces are balanced and yielding market-clearing prices and quantities. In this environment, money is exogenous. Since supply is always at its maximum (optimal) level, (independently driven) increases in supply of money cannot boost such sticky and nonresponsive supply. Those increases only create excess demand and inflation. On the other hand, the Keynesian point of view is less apologetic and recognizes market imperfections from time to time: the economy fall short of aggregate demand; markets operate below their full employment equilibrium level; which makes money endogenous (Hill, 2012). But this refers mostly to the short run.

The Keynesian Approach

A good hint of what Keynes' inflation theory would originally look like can be found in the analysis of the Keynesian-cross; where aggregate demand (vertical axis) is a positive ...