Question

If a university passed a rule stating that university students must live in university dormitories, what effect would this have on the price elasticity of demand for dorm space? What effect would this have on room rates?

Answer 1

Answer:

The correct answer is the price elasticity of demand would be more INELASTIC, and room rates would increase .

Explanation:

Inelastic demand is that demand that is not very sensitive to a change in price. In this way, before a variation in the price the quantity demanded reacts in a less than proportional way. For example, if the price increases by 10% and in response the quantity demanded is reduced by less than 10%, then the demand is said to be inelastic.

There are several factors that determine the elasticity of demand at a given time. Here are some factors that tend to make demand more inelastic:

• When they do not exist or there is little availability of substitutes, the elasticity of demand is lower
• The goods that the consumer considers essential have a more inelastic demand (for example insulin)
• In the short term demand tends to be more inelastic