College Enrollment and Apartment Prices. Consider a college town where the initial equilibrium price of apartments is $400 and the initial equilibrium quantity is 1,000 apartments. The price elasticity of demand for apartments is 1.0 and the elasticity of supply is 0.50.
Suppose the demand for apartments increases by 15%.
The new equilibrium price of apartments
increased
by
?percent (enter your response as an integer).
increase
To find the new equilibrium price of apartments, we need to first determine how the change in demand will affect the price. Given that the price elasticity of demand is 1.0, we know that a 15% increase in demand will result in a 15% decrease in price (assuming all other factors remain constant). This is because the price elasticity of demand measures the responsiveness of quantity demanded to changes in price.
To calculate the new equilibrium price, we subtract 15% from the initial price:
New price = Initial price - (Initial price * 15%)
= $400 - ($400 * 0.15)
= $400 - $60
= $340
Therefore, the new equilibrium price of apartments is $340.
To determine the percentage change, we compare the new equilibrium price to the initial price:
Percentage change = [(New price - Initial price) / Initial price] * 100
= [($340 - $400) / $400] * 100
= [-$60 / $400] * 100
= -0.15 * 100
= -15
Thus, the new equilibrium price of apartments increased by -15% (approximately).
Note: The negative sign indicates a decrease in price, rather than an increase.