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Land close to the center of a city is in fixed supply, but it can be used more intensively by using taller buildings. When the population of a city increases, illustrate the long- and short-run effects on the housing markets using a graph.Q26Emus can be raised on a wide variety of ranch land, so that there are constant returns to scale in the production of emus in the long-run. In the short-run, however, the population of emus is limited by the number of breeding pairs of emus and the supply is essentially vertical. Illustrate the long and short-run effects of an increase in demand for emus. (In the late 1980s, there was a speculative bubble in emus, with prices reaching $80,000 per breeding pair, in contrast to $2,000 or so today.)
Solution: If the land close to the center of a city is fixed in supply, the supply should be vertical, in the short run as the supply of housing tends to be extremely inelastic in the short run . But since a fixed supply of land can be used more intensively by using taller buildings, supply should be upward sloping in the long run. Short run effect of increase in population on the housing market: In the short run, the supply curve for housing will be vertical .Now, when population increases, the demand for housing increases at any given price and the demand curve shifts to the right. Supply remaining the same, the equilibrium price increases from P to P and equilibrium quantity remains the same ( as supply is fixed). The relevant diagram has been shown below: In the above diagram it can be seen that in the short run the supply curve is extremely inelastic and the demand curve shifts from D to D’. Equilibruim price as a result increases from P to P’. Long run effect of increase in population on the housing market: The long run supply curve is more elastic and is hence upward sloping.In response to an increase in the equilibrium price of houses in the short run, the number of houses supplied increases at each price and the supply curve shifts to the right. As a result,equilibrium quantity increasesfrom Q to Q.However, the increase inequilibrium price in this case is negligible.In general, the change in equilibrium price in such a case is ambiguous. The…

ce may increase , decrease or remain constant depending on the magnitude of shift of the curves and also their elasticity.The relevant diagram has been shown below: In the above diagram, the demand curve shifts from D to D’ and the long run supply curve shifts from LRS to LRS’. 2Short run effect of increase in demand for emus: Given , the supply of emu is fixed in the short run and so, supply curve is essentially vertical. The situation has been shown in the diagram below: The demand shifts from D to D’ and the supply curve is extremely inelastic Equilibruim price as a result increases from P to P’ and the equilibrium quantity remains the same. Long run effect of increase in demand for emus: In the long run , the supply of emus will be relatively elastic. In response to an increase in the equilibrium price of emus in the short run, the number of emus supplied increases at each price and the supply curve shifts to the right. As a result,equilibrium quantity increasesfrom Q to Q. However, the increase inequilibrium price in this case is negligible. In general, the change in equilibrium price in such a case is ambiguous. The price may increase , decrease or remain constant depending on the magnitude of shift of the curves and also their elasticity.The relevant diagram has been shown below:

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