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There are two markets for rental housing at a popular beach vacation destination among the rich. One market occurs during the high season which runs
- There are two markets for rental housing at a popular beach vacation destination among the rich. One market occurs during the "high season" which runs from June - August. The other is during the "off season" which runs from September - May. The market demand for the two types of rental properties is as follows:
- QH = 36.21.50PH +0.10PO +0.075Income
- QO =20.78.52P0 +3PH +0.01Income
- during the high-season and off-season, respectively; PH and PO are rental price per square foot in dollars for the high-season and off-season; and Income denotes average household income of renters (in thousands of dollars per year). Last year PH = $30, PO = $8, and I = $800. Using this data, one can calculate that last year QH = 52 and QO = 50.54. Based on this information, which of the following are true?
- At last year's prices and incomes, the demand for off-season rentals is inelastic with respect to its own price.
- At last year's prices and incomes, the demand for high-season rentals is inelastic with respect to its own price.
- A 10% increase in PH will have a bigger impact on the demand for off-season rentals than a 10% decrease in PO.
- All of the above are correct.
- Both (b) and (c) are correct.
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