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chapter 2 ii* lam > 1

i, surprisingly, however, the vacancy rate in manhattan increased from 8.0 percent in august 2001 to 9 3 percent in november 2001. moreover, the average rental price fell from s5230 to s50.75 per square

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foofmn downtown manhattan, the location of the trade center, the changes were even more dramatic the vacancy rate rose from 7.5 percent to 10.6 percent and the average rental price fell nearly 8 percent,
to $41.8u what happened? rental prices fell because the demand fiitotooi tpau; felt _!c figure 2.10 describes the market for office space in downtown manhattan. the supply and demand curves before 9/11
appear as s^- and d^^. the equilibrium price and quantity of downtown manhattan office space were s4534 psf and 76.4 msf, respectively. the reduction in supply from august until november is indicated
by a leftward shift in the supply curve (from 5^, to s' mod); the result is a higher equilibrium price p" and a lower equilibrium quantity, q'. this is the outcome that most forecasters predicted for the months
following september 11.
quantity

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; although demand for most resources has increased dramatically over the past century. , prices have fallen or risen only slightly in real (inflationadjusted) terms because cos! j i reductions have shifted the supply curve to the right just as dramatically.

advantage of mining and refining on a large scale. as a result, the supply curve shifted over time to the right. over the long term, because increases
in supply were greater than increases in demand, price often fell, as shown in figure 2.9.
this is not to say that the prices of copper, iron, and coal -will decline or remain constant forever. after all, these resources are finite. but as prices
begin to rise, consumption will likely shift, at least in part, to substitute materials. copper, for example, has already been replaced in many
applications by aluminum and. more recently, in electronic applications by fiber optics. (see example 2.7 for a more oetailed discussion of copper
prices.)
following 9/11 the supply curve shifted to the left, but the demand curve abn shifted
to the left, so that the average rental price fell.

s* i^f4*^^vi-the'ffts,of.9^f.lon the supplf ond demond'forl^'.!

* "**7 ** -93?*?-~new york city office space .-.**. trfi/texjff&fssfr* ;
the september 11. 2001, terrorist attack on the world trade center (wtc) complex damaged or
destroyed 21 buildings, accounting for 31.2 million square feel (mso of manhattan office space
nearly 10 percent of the city's entire inventory. just prior to (he attack, the manhattan office
vacancy rate was 8.0 percent, and the average a:, ring rent w* s!2o0 per square foot (psf).
given the huge unexpected reduction in the quantity of office space supplied, we might expect
the equilibrium rental price of ol/ice space to increase and, as a result, the equilibrium quantity
of rented office space to decrease. and because it takes time to construct new office buildings
and restore damaged ones, we might also expect the vacancy rate to decline sharply.

many forecasters, however, failed to predict the significant decrease in demand for ol.'ice
space complementing the loss in supply. first, many firms. both displaced and non-displaced,
chose not to relocate downtown because of quality-of-life concerns (i.e., the wtc ruins, pollution,
disabled transportation, and aging inventory). firms displaced by the attack were also forced to
reevaluate their office-space needs, and they ultimately repurchased a little more than 50 percent
of their original office space in manhattan. others left manhattan but stayed in new york city;
still others moved to new jersey.5 furthermore, in late 2001, the u.s. economy was
jison bram, james orr, and carol rapuport, "measuring the effects of thr september 11 AUACL on new yurk cay"
federal reserve bank of new york. economic policy rnw. november 3002.