Question

Suppose federal government announces the plan to double the number of immigrants in 10 years
from now. What would be the impact on current rent and price implied by the four quadrant model?
Draw the diagram. Mark the initial equilibrium and the equilibrium after the announcement on the
diagram. Label all the axes and equilibriums properly. Write down all the equations corresponding to
each curve.

Answer 1

Rent and price are interlinked. Rent is determined in the market by real estate stocks and fundamental. In economy , both population and income are connected. Here the government announces the plan to double in next 10 years. Obviously it will have impact on the population and the rent.

Four quadrant model

It characterize equilibrium given demand and fundamental parameter economy.

Price is more volatile than rent. price and rent can move in opposite direction depending on the situation.

The four quadrant model explains the relationship between the two variables.

Real estate is a useful linkage to land use theory and actual land usage. For firms, space is the only factor of production. Depending on various factors the rent will be determined.

construction rate, space, real estate stock, capitalization rate.

Demand of space is determined by:-

R=f1(S)

S=E(q-p R)

Construction is determined by:-

Construction=f(price)

construction =(P-construction parameter)

Assest valuation :-

price=R/i

Stock adjustment

supply=c/d

p-q is the demand parameter

R is the rent per unit

S is the supply

i is the capitalisation rate

d is the depreciation rate