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Q) explain the relationship between the price of a dwelling and the rental income achievable from...

Q) explain the relationship between the price of a dwelling and the rental income achievable from that dwelling in a perfectly competitive market ?

PLEASE GIVE YOUR ANSWER IN WORD FORMAT. DO NOT CONVERT INTO IMAGE

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Answer #1

In case of perfectly competitive market, since there are many buyers and sellers in the market and also dwellings are assumed to be perfect substitutes and free entry and exit of agents is allowed in the long run, then

Price of a dwelling = Rental income achievable from that dwelling.

If price was higher than the rental income achievable, there would be excess supply since no one would be willing to buy the property. On the other hand if price was lower than the rental income achievable, there would be excess demand. Hence equilibrium is achieved when:

Price of a dwelling = Rental income achievable from that dwelling.

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