Chapter 70, Problem 2FRQ

To determine

The correctly labeled graph for a land market.

Explanation of Solution

Graph of the land market can be drawn as follows:

Supply of land

The quantity supplied is represented on the horizontal axis of the graph and demand for the land at a particular price or rental rate is shown on the vertical axis of the graph.

As the supply of land is fixed, therefore, the supply curve is a straight vertical line but the demand curve is on a downward slope, which means the decrease in the price of land lead to more demand for land.

The equilibrium rental rate of the land is at the point of P0 and the equilibrium quantity of land is equal to the supply of the land where the demand and supply curves intersect. Here, the supply and demand of the land are equal and the point is denoted by E.

Economics Concept Introduction

Introduction: When the quantity demanded and supply of goods are equal, this situation is called market equilibrium.