Suppose the supply of farmland is infinitely inelastic and the demand for land is downward sloping but inelastic at the current equilibrium. If the supply curve shifts leftward (e.g., some farmland is permanently converted to other uses), 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

Given that the supply of farmland is infinitely inelastic, it means the supply curve is vertical. A leftward shift in this vertical supply curve (due to some farmland being converted to other uses) would not change the quantity of farmland available because the supply is perfectly inelastic; however, it would increase the price of the remaining farmland because the demand is downward sloping and inelastic. This increase in price, with the quantity of land unchanged, leads to an increase in total economic rents, as rents are a function of the price of land and the quantity of land available.

Suppose the Supply of Farmland Is Infinitely Inelastic and the Demand