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Difficulty: Very hardResolve the Paradox

Three years ago, the city of Oakhaven enacted a steep annual penalty tax on commercial buildings that remain vacant for more than six months. The tax is financially ruinous, strongly motivating landlords to avoid paying it. Today, the total number of vacant commercial buildings in Oakhaven has dropped to nearly zero. Paradoxically, over the same three-year period, the total number of active businesses operating in Oakhaven has sharply declined, and the average cost to rent commercial space has skyrocketed.

Which of the following, if true, most helps to resolve the apparent discrepancy?

  1. Rather than paying the tax or accepting lower rents, many landlords demolished their vacant commercial buildings, as undeveloped land is exempt from the penalty.Answer
  2. B
    Fearing the severe financial burden of the tax, many commercial landlords aggressively lowered their asking rents to attract new tenants before the six-month deadline.
  3. C
    Because the city lacked the resources to audit property usage, the majority of landlords simply ignored the new legislation and left their buildings vacant.
  4. D
    The skyrocketing cost to rent commercial space over the past three years forced many independent retail businesses in Oakhaven to cease operations.
  5. E
    Prior to the enactment of the penalty tax, Oakhaven already possessed the highest average commercial rent of any municipality in the region.

Answer

The statement explaining that landlords demolished their vacant commercial buildings to create tax-exempt undeveloped land.
The correct answer provides a single mechanism that perfectly aligns all the facts. By demolishing the buildings to create tax-exempt undeveloped land, the properties are no longer classified as 'vacant commercial buildings', explaining the drop to near-zero vacancy. At the same time, this massive destruction of commercial real estate creates a severe shortage of leasable space. This supply shock explains why rent prices skyrocketed for the remaining buildings, and the overall reduction in physical space explains why the total number of active businesses declined.

Step-by-Step Solution

1
Identify the opposing facts in the stimulus.
Fact 1: Vacant commercial buildings dropped to nearly zero. Fact 2: Active businesses sharply declined, and average rent skyrocketed.
Resolving a paradox requires a clear understanding of the seemingly contradictory premises.
2
Analyze the underlying tension between the facts.
Normally, a drop in vacant buildings implies more buildings are occupied by businesses, which should mean an increase in active businesses. Furthermore, more occupied buildings usually indicates a healthy supply, which shouldn't necessarily cause rents to skyrocket while business numbers decline.
Defining the expected logical relationship highlights exactly what the correct answer needs to explain.
3
Evaluate the options for a mechanism that reconciles all facts simultaneously.
The correct answer must explain how vacancy can drop while the supply of leasable space drops (causing high rents) and total businesses drop. The physical destruction of the buildings perfectly accounts for a drop in 'vacant buildings' without adding 'active businesses', while the resulting supply shock explains the rent increase.
The correct option must allow all premises to be true without directly denying any of them.

Key Concept

To resolve a paradox involving rates, numbers, or supply-demand economics, look for an unstated shift in the underlying baseline or total capacity.
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Topics

Resolve the Paradox

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