California Passed a Law Called "Proposition 2 ½" That Limited

question 179

Multiple Choice

California passed a law called "Proposition 2 ½" that limited property taxes to 2.5 percent of property value.Naturally this reduced taxes on many properties, and apartment landlords had more money at the end of the year at given rents.This windfall could be called an economic rent only if

• A)we push the definition of economic rent too far.
• B)the supply of rental units can be expanded.
• C)the supply of rental units is fixed.
• D)competitors can build housing at costs that yield the return that was earned before the tax cut.

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