Alright, AP students… you are economics detectives and you’ve been assigned your first case. The mystery is thus: how can decreasing demand cause prices to go up? In chapter three, we are reading about product markets, the interaction of supply and demand, and market equilibrium price and quantity. You’ve read that prices are affected by the interaction of supply and demand. Clearly, if demand for a product rises, prices should go up unless supply increases a certain amount. On the other hand, if demand falls, then prices should fall unless supply falls at the same time.
So what’s happening in the article above? The headlines seems to proclaim an economic impossibility is occurring: as demand falls, prices rise! How is this possible? Is it? Is the market for apartments in the D.C. area defying the laws of demand and supply? Read the article and see if you can solve this economic mystery!
So what’s happening in the article above? The headlines seems to proclaim an economic impossibility is occurring: as demand falls, prices rise! How is this possible? Is it? Is the market for apartments in the D.C. area defying the laws of demand and supply? Read the article and see if you can solve this economic mystery!
48 comments:
Prices can increase even when the total demand for all existing apartments have not increased with those prices. - This is due to an increase in demand for better quality apartments. When this occurs, rent increases for all the apartments, rather than only the Class A apartments. The regular supply and demand rules would still then, apply, if the Class A market were isolated from the other apartments.
Demand is decreasing, but prices are increasing because people are choosing quality regardless of the price. If the class A apartments were no longer part of the market, the usual supply and demand rules would work.
The prices of the apartments has increased, but this is not due to the decrease in demand of apartments or space. It is due to the increase in demand of the higher quality spaces that the prices increase even though vacancy increases. Therefore, the "class A" apartments are, indeed, the reason for this economic anomaly.
class a spaces are getting a better occupied rate then class b or c. However the average vacancy rate goes up and the overall prices go up. This is simple, the prices may go up overall but the demand stays low overall, meaning people are choosing the better apartments (class A) and not getting the class b and c spaces. Since there is range in different kind of apartments the average will not follow the supply and demand rules.
The price for Class A apartments, which are higher quality, more expensive apartments, is pulling up the price of rent across the market, bringing prices of lower-quality apartments up along with it. The low demand for low quality apartments is represented in the whole market, just as the hight price for the high quality apartments is represented. So, this shows a demand increase and a price increase.
It's not that the demand for all of the apartments are decreasing and the prices for all of the apartments are increasing. Only the demand for lesser quality apartments is decreasing. Seeing as that demand counts for 2/3rds of the total demand, the total demand appears to be decreasing while really 1/3 of the demand is increasing it's just not large enough to over come the 2/3rds). On the subject of the cost rising; the higher end apartments will cost more than the lower end apartments so if more higher end apartments are being demanded their price will go up thus over shadowing the prices for the lower end apartments.
Class "A" spaces are being occupied more than Class "B" and "C" but because of this, there is more people not living in the apartments, making prices rise. Prices go up but demand goes down, leading people to hcoose theClass "A" apartments.This will case the lemand and supply trends to be altered.
It is possible for average prices to rise when the overall demand has decreased, and this is due to the quality of apartments that are being rented now. Because people are opting for nicer, more expensive apartments over the cheaper complexes, it is shooting up the average price even though the overall demand is decreasing. As long as those apartments remain much more popular, prices can continue to increase as demand for apartments decreases.
Even though it seems that this case seems to conflict with the law of demand, it isn't: the "other things equal" assumption that comes wih law of demand has been violated. In this scenario, the demand for "quality, high-end" living spaces has risen, which is reflected in the increasing prices. Since the Class A apartments gained occupants, it seems that the "rules" don't fit.
This is one of the cases where both the supply and demand alters in the supply-demand curve. The demand for class A apartments is high, due to the quality of the apartments. But compared to the total demand of all class apartments, this demand is low. At the same time, the supply of the class A apartments are decreasing, thereby increasing the price of class A apartments. The one of the speakers in the article, Sikaitis, says that there is still hope in the apartment market solely based on the demand of class A apartments.
the price of expensive class A departments is directly correlated to the price of the lower quality class B apartments. When the price goes up for the class A's, the class B's follow; and the demand of the higher quality spaces brings up the prices, showing that the "class A" apartments are to blame.
There are special cases when demand and price do not necessarily directly relate. In this case demand is decreasing in the lower quality apartments, because of popularity in higher end apartments. The vacancies are in the lower apartments and there is less demand for those while there is more for the class A ones and the prices rise there.
Since the demand for higher class apartments is rising, the price also increases since there is a "shortage" of higher end apartments. The relation between the higher and lower end apartments causes the price to increase in both markets, without having the demand increase for both.
So to put it simply... What everyone else is saying lmao.
Demand for class A apartments has actually increased, while demand for class c and b apartment has decresed. Since class A apartments are more expensive the overall price increased. So even though the overall demand decreased due to less demand for c and b aparments, price overall has risen due to expensive class A apartments.
The demand is decreasing, but the prices are continuing to increase because they do not want the lower quality apartments, they want the nicer ones. Thus, the price will continue to rise for the rent across the entire market because it does not only affect the nice apartments. Therefore, it is possible for the demand to decrease but the overall price to increase.
Even with the overall demand for apartments decreasing, expressed in an increasing vacancy rate, prices are rising because the demand for higher priced, better quality apartments is increasing. In effect, the higher price of the nicer, class A apartments are making up for the price of the loss of class B and C apartments.
The demand for all apartments seems to have decreased, but this is only because people are being more picky about their housing. People are looking for high quality Class A housing rather then setteling. However because the demand for one type of housing is increasing all housing prices raise.
People are demanding higher quality housing, so the demand for Class A is up, therefore prices have risen. This drives up the price of the whole housing market, even though lower class housing has seen a decrease in demand. If Class A was taken out of the picture, the regular rules of supply and demand would apply.
Demand is increasing on the high end thus raising the average cost of space. The demand is not as strong as earlier and with the constant construction/addition of new spaces for this niche in the market makes the vacancy rate rise at an inflated rate. In short the reason price is going up is because taste has moved from quantity to quality.
Since people want the better, more expensive apartments, the overall price has increased in the market. Because there are more people buying the class A apartments, there is a decline in the demand for class B and C apartments. Therefore, the decrease in demand is caused by class B and C apartments not being sold and the price increase is caused by people buying the more expensive apartments.
The price level in the apartment market has risen, but the overall demand has been reduced. Why? Well, more pricey apartments are being paid for, while residing in inferior buildings seems increasingly unappetizing. The average price that people pay for an apartment is growing, but the demand is shrinking, focusing solely on high-class apartments (in this case, Class A) Basically, the increase in money spent outweighs the decrease in overall demand for ALL apartments, causing a confusing economic trend.
Overall, the demand for the offices spaces is decreasing, but the demand for the quality, high-end, class "A" office spaces are increasing, thus causing an increase in the price of occupancy. Such is this case where demand and price aren't directly correlated because the demand for class "B" and "C" spaces are lower but the price is still increasing because of the demand for "A".
"The flight to quality has brought rents up throughout the market."
Although there may be fewer individuals willing to purchase these apartments, a decrease in demand due to a reduction in income, those who have the taste (combined ability and willingness) will continue to pay a premium price for safety. A thing is only worth what people are willing to pay for it, and as long as individuals are willing to pay, there is no reason to reduce the rental fee. Although, profit in volume always exceeds profit in quality, the continued high prices prevent undesired cliental from entering the arena and provide a safe environment desired by wealthy individuals. The landlords are preparing for an economic rebound and the opportunity to fill all their vacancies with premium paying tenants.
The higher price apartments are being filled, while the lower cost(and lower quality) ones are becoming vacant. It looks to me that consumers are opting to make an investment, they plan on staying put longer than usual, so why not go all in. In that case the demand for a nicer apartment has raised, leaving the supply of the lower quality ones to surplus!
Demand for Class B and C apartments is falling, but demand for Class A apartments is raising. The demand for Class A office space is raising the rent price for all the other buildings, creating the illusion that (overall) falling demand is generating higher prices.
"the continued high prices prevent undesired cliental from entering the arena and provide a safe environment desired by wealthy individuals."
Zach so racist. He haets da black pplz.
-Eric Yu - 7th period.
Because people are flocking to the higher end, better quality class A apartments, the price of said apartments is going up. Since most people are going to the class A apartments, the demand for class B and C apartments is low, and since classes A, B, and C are all in the same category, the low demand in class B and C out weighs the high demand for A apartments and brings the demand curve down. The reason prices are going up is because so many people are buying class A apartments that there is a shortage and that is making the prices rise.
Price can increase while the demand decreases. In the case of the apartments, the demand for better quality apartments, Class A, has increased. Because the Class A apartments are better quality, the prices increase not only for the Class A apartments, but for Class B and C. Therefore, the mystery in the market for apartments in D.C. is caused by the Class C apartments.
The rules of supply and demand have not been broken. Rather, three separate markets exist. By omitting this fact it would appear that demand is decreasing, however both new apartments and tenants moving into class A apartments cause this artificial decrease in demand. Because tenants are moving from lower priced to higher priced apartments price/tenant rises and thus total price does as well
To reiterate what my colleagues have already posted, this economic phenomenon can be attributed to the consumer’s desire for quality. Though this seems to defy the very fundamental principles that the market system is based on, it is very possible. The Recession has hit many families hard, however, the elite few who remain in extremely lucrative positions are capable of affording luxurious apartments. The exorbitant fees that they pay for their plush, Upper Eastside apartments will serve to compensate for the wages lost in the decline of the lower-class real estate market.
Here is what we can consider, keeping all other things constant.
The demand for better apartments is increasing, but not as much as the decrease of poor quality apartments. There now becomes a shortage of good apartments and a balance of poor apartments(due to the changes of rooms supplied). Businesses now raise prices because of the want for apartments to have a better quality (which causes good apartment shortages to end and creates poor apartment surpluses). Unable to compete at high prices, poor apartment businesses transfer their extra resources to produce a better quality.
This is the reason that demand for apartments is going down (from poor apartments) and prices are going up (due to competition from good apartments). Individually each business would follow the rules of supply and demand. In this case, the laws leaned towards little amounts of more expensive apartments because of increasing demand for better quality.
Since the people in Washington are willing to pay for higher quality Class A apartments than Class B and C, the laws of supply and demand have been altered. However the demand for apartments will continue to increase in DC, so why not raise price rents for luxurious apartments. So the laws of supply and demand still apply, if it weren't for the Class A apartments.
Although the demand for Class B and C apartments are declining, the demand for Class A apartment has a net increase. Because more people have chosen to move into a premier apartment, prices have risen due to the increase in demand, while the appeal and affordability of the Class B and C apartments have fallen. The laws of supply and demand may not seem to apply in this situation, but when looked at carefully, the tastes of consumers have altered the market.
Eric: "the continued high prices prevent undesired cliental from entering the arena and provide a safe environment desired by wealthy individuals."
"Zach so racist. He haets da black pplz."
Eric, I’m hardly racist, you’re so prejudice for assuming the “undesired cliental” are black people. There are whites in the ghetto, too. I don’t hate the black people; I hate the people that don’t contribute because they either don’t go to college or earn a “BS degree.” That is not to say “high school and college dropouts don’t contribute.” Bill Gates is a Harvard drop out. Eric, you, for once, made this about the blacks first. I have met many pleasant individuals of color. You flip everything I say and pull it out of context.
Point is: Generally speaking, lower rent areas are less desirable, regardless of what the people that live there look like.
the supply and demand rules still apply.the possibility for the average prices to rise occurs because of the apartments that are being rented now. the demand for higher quality apartments has increased which causes the the rent to increase for all.
The reason that price increases when demand is decreasing is due to the fact that people want better quality apartments. If the Class A apartments were eliminated from the market, then the supply and demand would be the usual supply and demand.
Basically, the demand for apartments overall is dropping, but the demand for nice, high-quality, and thus more expensive, apartments is rising, generating an overall increase in price. It seems the popularity of nicer apartments outweighs the lack of appeal of standard to poor quality ones, so the typical supply and demand trends don't apply in this particular case.
the reason for this crazy phenomenon is the increasing quality fo the living space of that area.even though there is little demand, the high quality of their product allows a high price.
anju joes
period 7
People are choosing quality above all, and of course, quality costs the prettiest penny. Choosing the most expensive buildings raises the rents for everything, despite the overall decrease in the demand for housing.
As stated in the article, even though demand is decreasing in certain areas, the overall demand for high-end apartments is leading to an increase in rent for all apartments. The article also states that it was a survey of sorts for the offices in the D.C. area which includes Virginia (where demand is much lower) and Maryland. It is D.C. and Maryland's demand for nice apartments which is bringing the price up while Virginia's lack of demand is bringing the demand percentages down.
Wow! How can I even begin to explain this magic?! Well I would start by saying that people who can afford it, will always choose quality over price, ecspecially when it comes to living accomodations. Because of this the demand for apartments in going down, but prices continue to rise because the luxury apartments are still profitable. This phenom will continue as long as people keep looking for quality places to live.
People are flocking to Class A apartments, which increases demand for these apartments and well as raising market price. The market demand for all apartments is less, however, because less people are renting apartments. Out of those that do, more people are renting out higher quality apartments.
"Eric, I’m hardly racist, you’re so prejudice for assuming the “undesired cliental” are black people. "
I assumed they were black people since those are the people you hate the most.
the price is increasing because people are demanding apartments based on quality and so the demand is decreasing
This is an example of a specific part of demand moving against demand as a whole. Although the overall demand for apartments in the area has declined, the specific demand for higher quality apartments has actually risen. Therefore, the prices for high-end apartments have gone up because the specific demand for high-end apartments has gone up.
Class A buildings are able to raise their prices despite a falling vacancy rate for all office spaces because of their "premier" and high class quality. Thus, the foundations of economics apply when you separate they markets for apartments by their class and not group them all together - Demand for Class A buildings is rising, and thus have a higher rent, a system unrelated to the markets of Class B and Class C buildings.
More people want to have a certain apartment, regardless of the number of people actually buying. The demand is decreasing as a whole but demand for that particular class of apartment is higher than the others, thus driving the price up.
"In building categories, Class A, the premier, most expensive office space, showed net gains in occupied space, while Class B and C buildings recorded net losses, CoStar said."
"John Sikaitis, research director at Jones Lang LaSalle, a commercial real estate firm, said more tenants are flocking to Class A space, which raises rents."
So what's happening is that the demand for class B and C buildings are decreasing, but that of Class A is increasing. People are switching from class B and C to class A. Hence, the total rental income of all landlords divided by the total number of locations rented is high. This is what the article means when it says prices are going up. However they are not right when they say the demand is decreasing. The fact is that people's tastes have changed and they want Class A instead of Class B and C
I'm in a love/hate relationship with digital memory because of how prices are always dropping. I absolutely hate buying Micro SD Cards for my R4 / R4i at (seemingly) a bargain price only to see it become a whole lot more cheaper a few months later.
(Submitted from NetServ for R4i Nintendo DS.)
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