LR Question 6 Explanation
QUESTION TEXT: The construction of new apartments in Brewsterville…
QUESTION TYPE: Paradox
PARADOX: Rents rose in Brewsterville even as the housing supply rose.
ANALYSIS: There are two factors in economics that determine price: supply and demand. Other things equal, it works like this:
- More supply: prices drop
- More demand: prices rise
The LSAT often expects you to know basic concepts from other disciplines. Supply and demand from economics is one of them. So, if price rose even though housing supply rose, it’s likely that housing demand also rose even more.
___________
- A smaller increase is still an increase. If you won the lottery and won “less money than you expected”, you still have more money than you did before. The stimulus was clear that the housing supply did increase, and you shouldn’t try to contradict the stimulus.
- Desire is relevant to price in terms of an individual apartment: you’ll pay more for a nicer place. But what sets overall price is the level of supply. In this case, there were more housing units available. So even if someone moved from an old unit to a desirable new one, their old apartment would open up for someone else to move into. New desirable housing frees up existing housing.
This is a common error when people think about housing markets. For example, in San Francisco, people say “The developer wants to build luxury housing, this will raise prices”. But, the luxury housing is a new housing unit. If you don’t build it, then the rich people will just moved into an older building in the city, pushing the previous tenants out. Increases in housing supply work to cut prices, no matter the type of housing built. - You may have thought this meant that people moved into Brewsterville to get to the new apartments, increasing rents in Brewsterville and decreasing rents in “some” areas. That’s a bit of a stretch to read into this answer: E much more directly says that housing demand increased. It’s a mistake to try to twist answers to say what you want them to.
Also, the word “some” is a vague word: you always must interpret it at its least helpful. Here, that would mean “One tiny village of 100 people had rents drop a bit, as 10 residents moved to Brewsterville”. In such a case, this change is so small to have no impact, and an answer cannot be correct if it has no impact, no matter which concepts it talks about. -
This tries to make it seem like the housing supply fell. There are two problems:
- The stimulus directly says the housing supply rose. This is trying to contradict that.
- The stimulus talks about what happened to rents after construction was done. This answer talks about what happened during construction, a temporary period. People may have moved back in once the construction was done.
- CORRECT. See the analysis above. This shows that there was an increase in housing demand during the time the apartments were constructed. Increases in demand raise prices.
More Resources for Paradox Questions
- Intro Course lesson: This intro course lesson covers Paradox questions.
- Mastery Seminar lesson: This LR Mastery seminar lesson covers paradox questions.
I didn’t choose (D), but I think it’s an odd answer choice. I think (D) explains the paradox in some way.
If a significant number of people moved out of existing apartments during construction, then there would be an increase in supply during that period, resulting in a decrease in rent. And I agree with Graeme’s reading that “people may have moved back in once the construction was done.” But for this very reason, the previously increased supply will fall back to normal levels. So the rent will go back up. (And even though we have some new apartments now, it is possible that the previously increased supply of apartments when people moved out is greater than the supply increased by the new apartments. So the overall supply is still decreasing).
D has a few key issues:
1. The stimulus explicitly states “rents for existing apartment rose.” This implies that rents increased beyond pre-construction levels. Your interpretation, where rents drop during construction due to vacancies and then return to their pre-construction levels, doesn’t satisfy the idea of a net increase. A return to pre-construction rents wouldn’t qualify as rents rising as implied in the stimulus. The paradox specifically requires an explanation for why rents are now higher than they were before construction began (not that they just returned to pre-construction levels).
2. As Graeme addressed, D discusses what happened during the construction period, however, the question is focused on what happened after the construction was completed. Any temporary dip in rents and fluctuations in supply are ultimately irrelevant to explaining why rents rose after the supply permanently increased.
3. At the most basic knowledge of economics, which is what the LSAT requires as you don’t need advanced economic knowledge, this boils down to a question of supply and demand. If supply increases but the prices still go up, that means demand must be increasing at a higher rate than the supply. Our answer must, therefore, address the missing piece regarding demand, which E does while D does not.
Hopefully that clarifies it, if you have further questions let me know!