If the supply of oceanfront lots is fixed and perfectly inelastic,
A)the demand for the resource determines its price and the level of economic rent
B)the supply of the resource determines its price and the level of economic rent
C)the supply of the resource determines its price and the demand for the resource determines the level of economic rent
D)the demand for the resource determines its price and the supply of the resource determines the level of economic rent
E)the supply curve is horizontal

Question

Quizplus · Accepted Answer

Since the supply is perfectly inelastic, no matter the price, the quantity supplied will not change. Therefore, the supply does not determine the price or the level of economic rent. The demand for oceanfront lots will determine the price, based on how much consumers are willing and able to pay for the fixed supply. The level of economic rent will also be determined by the demand, as it is the difference between the price and the cost of production (which in this case, is zero since the supply is fixed and no additional cost is incurred to produce more oceanfront lots).

If the Supply of Oceanfront Lots Is Fixed and Perfectly