Question

In the 1980s land prices in Japan surged upward in a ""speculative bubble."" Land prices then fell for 11 straight years between 1990 and 2001. What can we safely assume happened to land rent in Japan over those 11 years? Use graphical analysis to illustrate your answer.

Answer 1

Explanation:

Given the supply of land is perfectly inelastic, the drop in prices must have resulted from decreased demand for land. The demand for land would fall if there were less of a return on the land (i.e., rent), so we can safely assume that land rent fell in Japan between 1990 and 2001. The shifts from D3 to D2 to D1 demonstrate graphically what happened in Japan.