ECO10250 Economics For Decision Making - Assessment 1 Session 2

Question 3

a. The following information shows price ($) and quantity demanded (thousands per week) for entrance fees for a local attraction:

1. Calculate the elasticity of demand at each price level change using the midpoint method.
2. Describe how the elasticity of demand changes with respect to price.
3. Calculate the change in revenue for each price change.
4. Are the changes in revenue from part iii) consistent with the values of elasticity of demand that you calculated in part i)?

Parts i) to iv) are worth 1.5 marks each.

b. Your minister for housing wants to increase the number of privately owned low – rental housing units available by 7 percent.

1. If the elasticity of supply of this type of housing has been estimated to be equal to 0.3 over the relevant period, how much is the percentage increase in rent required? (2 marks)
2. If the rent for these units is currently $70 a week what is the increase in rent required? (2 marks)