Suppose the supply of land is infinitely inelastic and the demand for land is downward sloping but inelastic at the current equilibrium. If the supply curve shifts rightward (e.g., previously unusable land is cleared for production), what happens to the aggregate economic rents in this market?
A) Decrease
B) Increase
C) Remain the same
D) We do not have enough information to answer this question.

Question

Quizplus · Accepted Answer

Since the supply of land is infinitely inelastic, a rightward shift of the supply curve will not have any effect on the market price of land. However, the increase in supply will result in a decrease in economic rents as landowners will need to offer lower prices in order to sell or lease their land. Thus, aggregate economic rents in the market will decrease.

Suppose the Supply of Land Is Infinitely Inelastic and the Demand