Demand for residence halls iselastic-inelastic elastic

Reference no: EM13338409

In the early 2005’s, a medium-sized college had a rush inenrollment and built some rooms to house the additional students.Later on the enrollment dropped again and the college had a lot ofempty rooms. They had a big interest bill on the money they hadborrowed from banks to build the residence rooms, too. Theadministration of the college needed more money to pay the interestbills, and, not being economists, they "knew perfectly well" thatthe way to get more money was to charge the students higher rents.So they raised the room rent. Much to their unpleasant surprise, somany students moved out of the rooms that the income fromroom’s rents didn't increase, it dropped! Eventually thecollege administration gave up on the rent increase, and convertedone of the residence halls to an old people home!

What do you say that the demand for the residence halls iselastic, inelastic or unitary elastic and why? What policy would aneconomist suggest to increase the revenue?

Reference no: EM13338409

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