Land Economics - Exam 4 Principles of
Real Estate
The real estate commodity is considered a commodity as it has: - Answers -1. utility to
most people
2. marketable in it's own specialized area
What composes the real estate commodity? - Answers -1. Physical component - Land
(dirt)
2. Physical component - Improvements (bricks and sticks)
3. Legal component - Bundle of Rights
What determines Land Value? - Answers -1. Location
2. Bid-Rent Curve
3. Central Place Theory
Location - Answers -Expensive land is cheap, cheap land is expensive (takes more time
to get your money out of cheap land)
Central Place Theory - Answers -essential properties for work in central place
"Bid-Rent" - Answers -maximum land rent a potential user would be willing to pay for a
given site (location)
"Bid-Rent Curve" - Answers -shows how potential user's bid-rent changes as a function
of distance from some central point
Central point - Answers -the point at which transport costs are minimized (bid-rent
maximized) for the given use
What does equilibrium represent? - Answers -a well-functioning land market
Under equilibrium in a well-functioning market, what happens? - Answers -a.
Minimization of aggregate transport costs
b. Maximization of aggregate land value
Growth (Property Life Cycle Stage 1) - Answers -When you have values increasing due
to new construction/development
Equilibrium/Maturity (Property Life Cycle Stage 2) - Answers -you still have demand but
you have inflation
Real Estate
The real estate commodity is considered a commodity as it has: - Answers -1. utility to
most people
2. marketable in it's own specialized area
What composes the real estate commodity? - Answers -1. Physical component - Land
(dirt)
2. Physical component - Improvements (bricks and sticks)
3. Legal component - Bundle of Rights
What determines Land Value? - Answers -1. Location
2. Bid-Rent Curve
3. Central Place Theory
Location - Answers -Expensive land is cheap, cheap land is expensive (takes more time
to get your money out of cheap land)
Central Place Theory - Answers -essential properties for work in central place
"Bid-Rent" - Answers -maximum land rent a potential user would be willing to pay for a
given site (location)
"Bid-Rent Curve" - Answers -shows how potential user's bid-rent changes as a function
of distance from some central point
Central point - Answers -the point at which transport costs are minimized (bid-rent
maximized) for the given use
What does equilibrium represent? - Answers -a well-functioning land market
Under equilibrium in a well-functioning market, what happens? - Answers -a.
Minimization of aggregate transport costs
b. Maximization of aggregate land value
Growth (Property Life Cycle Stage 1) - Answers -When you have values increasing due
to new construction/development
Equilibrium/Maturity (Property Life Cycle Stage 2) - Answers -you still have demand but
you have inflation
