Business and Managerial Economics Essay Example | Topics and Well Written Essays - 2500 words

Business and Managerial Economics - Essay Example Trace the evolution of the rent and the quantity traded over time (in the long-run) (20 marks) An earthquake will affect not only the supply side but also the demand side of the housing market. On the supply side, the earthquake will reduce the supply of housing and, assuming that demand remained unchanged, the earthquake will lead to increases in rentals. However, demand does not remained unchanged in a major earthquake that caused significant damage to housing. Aftershocks take place and these sent jitters to consumers. City services like transport, electricity, and water are affected as well. Schools and workplaces may not be able to operate for some time. Thus, a major earthquake can send consumers to an exodus to locations safer from earthquakes and their aftershocks. In short, demand is affected as well. For this reason, it can happen house rent can remain unchanged or landowners may offer discounts to consumers. If demand is significantly reduced, house rent can even decrease and this seems to be the short-term effect in a strong earthquake everywhere. In the medium te rm as a location recovers from the earthquake, city and other services are restored and school/workplace operations normalize. But because supply is unable to respond quickly, housing supply may be fixed as demand is restored back to normal. Therefore, in the medium term, rentals may be higher than the immediate pre-earthquake levels. In this case, economic profit can be higher than normal and investors are encouraged to go into the housing sector. More housing units are built and the prices of house rentals decrease. The trend continues until the situation is normalized. This means that either house rentals are restored back to the pre-earthquake levels or the prices of rentals are back into the situation where economic profit is zero or â€Å"normal†. This discussion is similar to Varian (2005, p. 9). Restaurants that charge reasonable prices for food but