Explain who would gain from the new park and who would lose.
Explanation of Solution
Terrorist attack destroyed the World Trade Center and surrounding office buildings. This caused drastic changes in the supply and demand for office space in the area. The change in supply of office space means that there is a physical reduction in the availability of office space. If the fall in supply of office space is greater than the fall in demand, the price of office space would increase. Likewise, if the fall in supply of office space is less than the fall in demand, the price of office space would decrease. After rebuilding the destroyed buildings, it increases the supply of office space, which leads to fall in price of office space.
In the case of converting the World Trade Center into a park, it causes a permanent fall in the availability of office space. This means that in long run, the price of office space is high. Therefore, the owners of unaffected buildings or office space that is near to the area gain from the creation of park. The people who spend more of office space are the losers.
Want to see more full solutions like this?
Chapter 2 Solutions
Microeconomics
- Assume that, in the market for iron, all of the supply comes from iron mining firms, which own mines that contain limited quantities of iron. Most of the demand comes from steel manufacturers. Suppose that a new economic report predicts that world economic growth will greatly exceed previous projections, causing the price of iron to double in a year. What effect does this have upon the current market for iron? Select 2 correct answer(s) Question options: Supply shifts left. Supply shifts right. Demand shifts left. Demand shifts right. SELECT 2 ANSWERS PLEASE!arrow_forwardOur client is proposing to build a 300 unit apartment building in Downtown Denver which will deliver in 2022. Given the following graph showing five year supply vs demand for rental apartments in Downtown Denver, what do you think some of the implications for building a building in 2022 will be? Would you recommend they continue to plan on delivering in 2022? Why/why not?arrow_forwardSome have argued that higher cigarette prices do not deter smoking. While there are many arguments both for and against this view, some find the following argument to be the most persuasive of all: “The laws of supply and demand indicate that higher prices are ineffective in reducing smoking. In particular, higher cigarette prices will reduce the demand for cigarettes. This reduction in demand will push the equilibrium price back down to its original level. Since the equilibrium price will remain unchanged, smokers will consume the same number of cigarettes.” Do you agree or disagree with this view?arrow_forward
- Some have argued that higher cigarette prices do not deter smoking. While there are many arguments both for and against this view, some find the following argument to be the most persuasive of all: “The laws of supply and demand indicate that higher prices are ineffective in reducing smoking. In particular, higher cigarette prices will reduce the demand for cigarettes. This reduction in demand will push the equilibrium price back down to its original level. Since the equilibrium price will remain unchanged, smokers will consume the same number of cigarettes.”Do you agree or disagree with this view? Disagree - the reduction in demand will push the equilibrium price below its original level. Disagree - this confuses a change in demand with a change in quantity demanded. Agree - the price increase will ultimately leave cigarette consumption unchanged. Disagree - higher cigarette prices will actually increase the demand for cigarettes.arrow_forwardThe drug war There is a debate in the US and in Europe as to how to influence the market for drugs such as cocaine. Some argue that the answer is to reduce the supply of drugs from Colombia – which would otherwise eventually find their way onto the world markets – by giving aid to the Colombian government to fight the drug suppliers. If this is successful, it will drive up the price of cocaine on the streets. Higher prices mean that fewer people will be willing and able to buy drugs, resulting in a fall in demand. This scenario can be seen in Figure 1.13(a) where a successful anti-drug policy in Colombia would decrease supply, i.e. shift the supply curve for cocaine upwards and to the left so that there is an excess demand for cocaine at price P. This will result in a rise in the equilibrium price of cocaine from P to P1. The quantity demanded will contract along the demand curve D from Q to Q1 as price rises from P to P1. Critics of these ideas argue that programmes…arrow_forwardSuppose the price of rice differs by region in a country. Specifically, the price is $10, $13, $11 per hundredweight in regions A, B, and C, respectively. A and C are rural areas, and B is an urban area. All regions have the same population (same number of voters). The government considers building a railroad between regions A and B. If it plans to finance the construction by raising the sales tax rate, do you think it can be politically supported?arrow_forward
- People can buy houses which are in the process of being built. What would happen to demand for such houses if it was discovered that an asteroid was definitely going to hit the earth next week and wipe out all life on the planet? Which of the five reasons do you use to justify your answer.arrow_forwardQuestion 2 For each of the following events identify which of the determinates of demand or supply are affected. Also indicate whether demand or supply is increased or decreased. Why? People decide to have more children. A strike by aluminum workers rises aluminum prices. Engineers develop new automated technology for use in production. A stock market crash lowers people’s wealth. Batelco increases the prices of mobile services. Diminishing returns mean rising costs while economies of scale mean falling costs. Therefore, a firm cannot be facing both diminishing returns and economies of scale. Do you agree? Why or why not?arrow_forwardWhen graphing a market, one of the key aspects to remember is that equilibrium occurs where supply equals demand. Therefore, you can find the equilibrium price and quantity by setting the supply and demand equations equal to one another. In this case, since domestic demand is P = 11.5 - Q and domestic supply is P = 5.5 + Q, you can find the equilibrium quantity as 11.5 – Q = 5.5 + Q. Solving for Q, you get 2Q = 6 or Q = 3 (which in this case equates then to 300 million bushels). Plugging that answer back into either the supply or demand equation, you find the equilibrium price (which is 8.5 or 85 yuan) or Rent in this case). This is the equilibrium point with no trade.With the application of the world price and then the world price plus tariff, you just need to plug the established prices (6.5 for world price, 6.5 + 1.5 for the tariff) into the supply and demand equations to find the quantity supplied and the quantity demanded with or without the tariff. Recently, China placed tariffs…arrow_forward
- One of the members of the Senate Foreign Relations Committee has studied your analysis of Chinese privatization but is worried that the free-market price might be too low to enable producers to earn a fair rate of return on their investment. He asks you to explain what would happen if the Chinese government privatized the market but agreed to purchase (and discard) unsold units of the good at a floor price of $3.50. What do you tell the senator? Assume that the market demand and supply curves (in U.S. dollar equivalent prices) are still given by Qd = 10 − 2P and Qs = 2 + 2Parrow_forwardAn increase in the population of a country will cause the demand curve to shift outward and supply to increase. true or falsearrow_forwardBoth the Japanese government and Canadian governments are worried about rising prices of medicines. In the 1980s, the Canadian government implemented price ceilings on medicines. In the 1990s, the Japanese government stopped implementing price ceilings on medicines. Which of the below statements is true today? Canadian and Japanese citizens are equally likely to turn to black markets and medical tourism. Neither Canadian nor Japanese citizens are likely to turn to black markets or medical tourism. Canadian citizens are more likely than Japanese citizens to turn to black markets and medical tourism. Japanese citizens are more likely than Canadian citizens to turn to black markets and medical tourism (travelling to different countries for medical treatment).arrow_forward
- Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage LearningMicroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning