Answer to Question #80713 in Microeconomics for Diamond Phan

Question

What effect would a rule stating that university students must live in university dormitories have on the price elasticity of demand for dormitory space?

Answer 1

A rule stating that university students must live in university dormitories makes the price elasticity of dormitories perfectly inelastic. This is because the rule leaves the students with no option but to stay in the university dormitories. There are no substitutes to the university dormitories available for the students. Therefore, the demand for dormitory space will remain constant despite changes in the prices of the space.