MGMT 2035 MIDTERM UPDATED EXAM QUESTIONS AND CORRECT
ANSWERS WITH GUARANTEED PASS
According to Ricardo's Law of Rents, what is the relationship between prices
and rents?
A. Prices drive rents
B. Rents drive prices - ANSWER A. Prices drive rents
It's the profit that users stand to make from using the land that drives their
willingness to pay rent.
unique characteristics - ANSWER Refers to those attributes, both internal and
external, which combine together to give a property a Comparative Advantage
for a particular use.
comparative advantage - ANSWER Refers to that particular economic activity
which, as a result of a property's Unique Characteristic, will be more profitable
than any other activity for an operator and therefor results in the highest rents
(and therefore value) to the land owner.
Highest and Best Use - ANSWER refers to that use which exploits a property's
Comparative Advantage to generate the highest return to the owner of the
property (via rents from operators)
How is Unique Characteristics, Comparative Advantage, and Highest and Best
Use related? - ANSWER Unique Characteristics create a property's
Comparative Advantage which determines its Highest and Best Use
By comparing the needs and preferences of different users of land, what two
key pieces of information does the Bid-Rent Curve tell us about rents in
different areas of a city? - ANSWER Bid-Rent Curve tells us (1) HOW
MUCH rent will be paid and (2) WHAT TYPE OF USER will be paying for it.
Concentric Circle Model - ANSWER Bid-Rent reigns supreme. From a central
business district, differentiated zones of land use radiate outward.
, Axial Growth Model - ANSWER Differentiated zones radiate along major
transportation nodes (rather than from a central business district, per se)
Sector Model - ANSWER Modified bid-rent structure wherein differentiated
zones extend from the Central Business District, but also depends on adjacent
land use.
Multiple-Nuclei Model - ANSWER Differentiated zones arise based both on
adjacent land uses as well as access to transportation node. De-emphasis on the
"Central" Business District.
Physical Obsolescence - ANSWER - The building is falling apart
- Result: structure value declines
Functional Obsolescence - ANSWER - The building no longer meets its
intended audience's needs well.
- Ex: Small closets from 1960's construction
- Result: Structure value declines
Economic Obsolescence - ANSWER - The current use is no longer the highest
and best for the property
- Result: Usage Value at HBU increases, widening the gap between Property
Value (P) and Usage Value at HBU (U)1
When should you redevelop? - ANSWER Only if the cost of redevelopment is
less than or equal to the difference between the as-is value and the HBU value
Structure Value Formula - ANSWER Property Value (P) = Land Value (L) +
Structure Value (S)
Land Value Formula - ANSWER Land Value (L) = Usage Value at HBU (U)
+ Redevelopment Cost (K)
Gestation, youth, and maturity is what stage in the Neighborhood Life Cycle? -
ANSWER 1. Turnover is relatively low. New residents are economically and
socially similar to those already present.
Incipient Decline is what stage in the Neighborhood Life Cycle? - ANSWER
2. Those leaving the neighborhood are replaced by less affluent families.
"Filtering" occurs (residences get passed down to lower income families)
ANSWERS WITH GUARANTEED PASS
According to Ricardo's Law of Rents, what is the relationship between prices
and rents?
A. Prices drive rents
B. Rents drive prices - ANSWER A. Prices drive rents
It's the profit that users stand to make from using the land that drives their
willingness to pay rent.
unique characteristics - ANSWER Refers to those attributes, both internal and
external, which combine together to give a property a Comparative Advantage
for a particular use.
comparative advantage - ANSWER Refers to that particular economic activity
which, as a result of a property's Unique Characteristic, will be more profitable
than any other activity for an operator and therefor results in the highest rents
(and therefore value) to the land owner.
Highest and Best Use - ANSWER refers to that use which exploits a property's
Comparative Advantage to generate the highest return to the owner of the
property (via rents from operators)
How is Unique Characteristics, Comparative Advantage, and Highest and Best
Use related? - ANSWER Unique Characteristics create a property's
Comparative Advantage which determines its Highest and Best Use
By comparing the needs and preferences of different users of land, what two
key pieces of information does the Bid-Rent Curve tell us about rents in
different areas of a city? - ANSWER Bid-Rent Curve tells us (1) HOW
MUCH rent will be paid and (2) WHAT TYPE OF USER will be paying for it.
Concentric Circle Model - ANSWER Bid-Rent reigns supreme. From a central
business district, differentiated zones of land use radiate outward.
, Axial Growth Model - ANSWER Differentiated zones radiate along major
transportation nodes (rather than from a central business district, per se)
Sector Model - ANSWER Modified bid-rent structure wherein differentiated
zones extend from the Central Business District, but also depends on adjacent
land use.
Multiple-Nuclei Model - ANSWER Differentiated zones arise based both on
adjacent land uses as well as access to transportation node. De-emphasis on the
"Central" Business District.
Physical Obsolescence - ANSWER - The building is falling apart
- Result: structure value declines
Functional Obsolescence - ANSWER - The building no longer meets its
intended audience's needs well.
- Ex: Small closets from 1960's construction
- Result: Structure value declines
Economic Obsolescence - ANSWER - The current use is no longer the highest
and best for the property
- Result: Usage Value at HBU increases, widening the gap between Property
Value (P) and Usage Value at HBU (U)1
When should you redevelop? - ANSWER Only if the cost of redevelopment is
less than or equal to the difference between the as-is value and the HBU value
Structure Value Formula - ANSWER Property Value (P) = Land Value (L) +
Structure Value (S)
Land Value Formula - ANSWER Land Value (L) = Usage Value at HBU (U)
+ Redevelopment Cost (K)
Gestation, youth, and maturity is what stage in the Neighborhood Life Cycle? -
ANSWER 1. Turnover is relatively low. New residents are economically and
socially similar to those already present.
Incipient Decline is what stage in the Neighborhood Life Cycle? - ANSWER
2. Those leaving the neighborhood are replaced by less affluent families.
"Filtering" occurs (residences get passed down to lower income families)
