Additional Application ZONING, LAND PRICES, AND THE SUPPLY CURVE FOR APARTMENTS

question 218

Multiple Choice

Additional Application
ZONING, LAND PRICES, AND THE SUPPLY CURVE FOR APARTMENTS
In many communities, the rental-apartment industry is an increasing-cost industry. Most communities use zoning laws to restrict the amount of land available for apartments. As the industry expands by building more apartments, competition is fierce among firms for the small amount of land zoned for apartments.
Housing firms bid up the price of land, increasing the cost of producing apartments.
Producers can cover these higher production costs only by charging higher rents to tenants. What are the implications of zoning for a market that experiences an increase in demand? In the short run, the stock of housing is fixed. An increase in demand for apartments will increase the price of apartments the monthly rent) , and firms will convert some owner-occupied houses to rental apartments. This short-run supply response will be relatively small, so the price will increase by a relatively large amount, just as we saw in Figure 9.9 as the movement from point a to point b. In the long run, firms will enter the market by building more apartments. As we saw at point c in Figure 9.9, the new long-run equilibrium is shown by the intersection of the new demand curve and the long-run supply curve. The increase in demand leads to a net increase in price because zoning restricts the supply of apartment land, leading to higher land prices and a higher cost of producing apartments.
-Recall the Application on ʺZoning, Land Prices, and the Supply Curve for Apartments.ʺ In many communities zoning makes apartments an increasing cost industry. The long -run effects of an increase in demand for apartments are

• A)a relatively steep increase in price and a small increase in quantity supplied.
• B)a relatively small increase in price and a large increase in quantity supplied.
• C)and a relatively big increase in price and quantity supplied.
• D)a relatively small increase in price and quantity supplied.

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Definitions:

Production Possibility Frontier

An illustration that outlines the peak production capacities for a pair of goods, considering the available resources and technological advancements.

Efficient

Description of a market or economy that takes all opportunities to make some people better off without making other people worse off.

Production Rate

The speed at which goods are manufactured or produced in a given period.

Production Possibility Frontier

A chart that outlines the utmost production possibilities for two types of goods, contingent upon a selection of resources and other conditions.