Question

Suppose TTU expands northward across 12th St. The gas station across the street can now expect to gain an additional $40,000 annual profit in perpetuity. a. How will this affect the market price of the property where the gas station sits if the discount rate is 3%.

b. According to the leftover principle,who will actuallybbenefit from the extra profit. the shopkeeper or the landowner?

Answer 1

A. The market price of the property where the gas station sits will increase. This is due to the fact that due to TTU, there will be more customers for the products in that area which will increase the value and price of the area.

B. According to the leftover principle, the landowner will benefit from extra profit as he will get more rent from the increased price of the place.