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

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

TAHA MUHAMMAD

2005’s, a medium-sized college had a rush in enrollment and built some...