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Prices, Signals, and Resource Allocation
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Economics & Financial Literacy
12.12 Prices, Signals, and Resource Allocation
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Rents rise in a city after population growth increases demand for apartments. Developers file more building permits, but new units take time to finish. Which explanation is best?
A
The higher rent signals scarce housing and creates incentives to build, but the supply response is delayed by construction time and regulations.
B
The higher rent guarantees that all new units appear immediately.
C
The higher rent creates no incentive because construction takes time.
D
The higher rent signals that housing is already abundant, so building permits should fall.
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