Consider a college town where the initial price of rental apartments is $400 and the initial quantity is 1,000 apartments. The price elasticity of demand for apartments is 1.0 and the price elasticity of sully of apartments is 0.5.

a.Use demand and supply curves to show the initial equilibrium, and label the equilibrium point a.

b.Suppose that an increase in college enrollment is expected to increase the demand for apartments in college town by 15 percent. Use your graph to show the effects of the increase in demand on the apartments market. Label the new equilibrium point b.

c.Predict the effect of the increase in demand on the equilibrium price of apartments.