Fig. 1 shows demand and supply for rented student rooms in a university district. A new campus building opens nearby, increasing the number of students look...
Question 1 Report
Fig. 1 shows demand and supply for rented student rooms in a university district. A new campus building opens nearby, increasing the number of students looking for rooms. Landlords cannot build new rooms during the academic year.
(a) Which demand curve represents the situation after the campus opens? [1]
(b) State why the supply curve is relatively inelastic in this period. [1]
(c) Analyse the likely effects on rent and the number of rooms rented. [2]
(d) Explain one possible benefit to landlords from this change. [2]
Answer Details
(a) The situation after the campus opens is represented by the demand curve labelled D2. More students seek rooms at each rent. [1]
(b) Supply is relatively inelastic because new rooms cannot be built quickly during the academic year. The existing stock of rooms is largely fixed in the short run. [1]
(c) Rent rises because demand increases while supply is fixed or highly inelastic. The number of rooms rented rises little, or remains close to the number of rooms available, because landlords cannot quickly create many additional rooms. [2]
(d) Landlords can charge a higher rent. This raises rental revenue and may raise profit, provided that their costs do not increase by more than the extra revenue. [2]
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