Explain who would gain from the new park and who would lose.
Explanation of Solution
Terrorist attack destroyed the World Trade Center and surrounding office buildings. This caused drastic changes in the supply and demand for office space in the area. The change in supply of office space means that there is a physical reduction in the availability of office space. If the fall in supply of office space is greater than the fall in demand, the price of office space would increase. Likewise, if the fall in supply of office space is less than the fall in demand, the price of office space would decrease. After rebuilding the destroyed buildings, it increases the supply of office space, which leads to fall in price of office space.
In the case of converting the World Trade Center into a park, it causes a permanent fall in the availability of office space. This means that in long run, the price of office space is high. Therefore, the owners of unaffected buildings or office space that is near to the area gain from the creation of park. The people who spend more of office space are the losers.
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Chapter 2 Solutions
Microeconomics
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