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:
1. The stimulus directly says the housing supply rose. This is trying to contradict that.
2. 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.
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