1) The attack on the U.S. in 2001 severely reduced the number of offices availab
ID: 1093342 • Letter: 1
Question
1)
The attack on the U.S. in 2001 severely reduced the number of offices available for lease/rent in downtown Manhattan (New York City). At the same time, believing that downtown Manhattan was a known terrorist target caused many businesses in the area to relocate to safer locations. Assuming no other changes in the commercial real estate market in downtown Manhattan, we should expect the lease/rent price for office space and Manhattan to increase. Indicate whether this statement is TRUE or FALSE; and then provide support for your answer.
2)
In August 2005, Hurricane Katrina damaged or destroyed oil platforms in the Gulf of Mexico, refineries along the Gulf Coast, and pipelines that transport natural gas for heating to customers across the United States. The winter of 2005 was also unusually cold in many parts of the country. Assuming the natural gas market was in equilibrium prior to August 2005, how did these events affect the market for natural gas in terms of the equilibrium price and equilibrium quantity of natural gas bought and sold? Explain.
In August 2005, Hurricane Katrina damaged or destroyed oil platforms in the Gulf of Mexico, refineries along the Gulf Coast, and pipelines that transport natural gas for heating to customers across the United States. The winter of 2005 was also unusually cold in many parts of the country. Assuming the natural gas market was in equilibrium prior to August 2005, how did these events affect the market for natural gas in terms of the equilibrium price and equilibrium quantity of natural gas bought and sold? Explain.
Explanation / Answer
2. The supply of natural gas was severely decreased by Katrina. When the cold winter came, demand for natural gas to heat homes sharply increased. The combination of supply falling and demand rising created a big increase in the equilibrium price of natural gas. The change in equilibrium quantity is uncertain because we don't know the relative size of each shift.
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