In the real estate space market, when the demand curve intersects the supply curve belowthe replacement cost of rent, developers will: O a. Be indifferent to building property as they will break even. o b.Build new property as it is profitable to do so. OcNot build new property as it is unprofitable to do so. odBuild new property as rents have stabilized. O e.Not build new property as rents are falling.
Question
In the real estate space market, when the demand curve intersects the supply curve belowthe replacement cost of rent, developers will: O a. Be indifferent to building property as they will break even. o b.Build new property as it is profitable to do so. OcNot build new property as it is unprofitable to do so. odBuild new property as rents have stabilized. O e.Not build new property as rents are falling.
Solution 1
When the demand curve intersects the supply curve below the replacement cost of rent, it means that the price that tenants are willing to pay (the demand) is less than the cost to build new property (the supply).
In this scenario, it would not be profitable for developers to build new property because the rent they could charge would not cover the cost of building the property.
Therefore, the correct answer is:
c. Not build new property as it is unprofitable to do so.
Solution 2
In the real estate space market, when the demand curve intersects the supply curve below the replacement cost of rent, developers will:
c. Not build new property as it is unprofitable to do so.
Here's why:
The replacement cost of rent is the cost to construct a new building that is identical or similar. If the demand curve intersects the supply curve below this cost, it means that the rent that can be charged for the property is less than the cost to build a new property.
In this situation, it would not be profitable for developers to build new properties, as the income from the rent would not cover the construction costs. Therefore, developers would choose not to build new properties until the rent increases or the construction costs decrease to a point where it becomes profitable.
The other options (a, b, d, e) do not accurately describe the developers' response in this situation.
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