A tract of land is found to contain a plant from which drug companies can extract a newly discovered cancer-fighting medicine. This variety of plant does not grow anywhere else in the world. Initially, the many owners of lots within this trtact, who had not planned to use the land for anything other than its current use as a scenic locale for small vacation homes, announced that they would put all their holdings up for sale to drug companies. Because the land is also home to an endangered lizard species, however, a government agency decides to limit the number of acres in this tract that drug companies can purchase and use for their drug-producing operrations. The government declares that the remaining portion of the land must be left in its current state. What will be the effect of government regulation on the market price of the acreage that is available for extraction of cancer fighting medicine? What will be the effect on the market price of the land that the government declares to be usable only for existing vacation homes?
it will increase, and then decrease
The government regulation to limit the number of acres available for drug-producing operations will likely have an effect on the market price of the land that is available for extraction of cancer-fighting medicine. Due to the limited supply of land suitable for drug production, the demand from pharmaceutical companies interested in extracting the cancer-fighting medicine will likely remain high. This high demand and limited supply will drive up the market price of the acreage available for extraction, as drug companies will be willing to pay a premium to secure the land and access to the unique plant species.
On the other hand, the market price of the land that the government declares usable only for existing vacation homes is likely to remain relatively stable. Since the land cannot be used for drug production, the demand from drug companies will not apply to this portion of the land. The primary demand for this land will come from individuals or developers interested in maintaining or building vacation homes. The limited supply of this land, coupled with demand from vacation home buyers, might also keep prices stable or potentially result in a slight increase, depending on other market factors.
In summary, the government regulation is expected to increase the market price of the land available for extraction of cancer-fighting medicine due to high demand and limited supply. The market price of the land designated for existing vacation homes is likely to remain stable or experience a marginal increase due to demand from vacation home buyers.