(11) Given the price elasticity of demand for a good as 0.6. Suppose price of this good
decreases by 10%, what would we expect to happen to the quantity demanded?
Assignment B
nswer the following Middle Category questions in about 250 words each. Each
aestion carries 10 marks.
3 x 10 = 30
A rent ceiling prohibits charging rent that exceeds the ceiling amount. Suppose
government decides to put a rent ceiling.
(a) With the help of a diagram show the effect of a rent ceiling on the supply and demand
of a rented house if the ceiling is set below the market equilibrium rent.
b) What will be the resultant effects on supply and demand of a rented house if the
ceiling is set above the market equilibrium rent?
OR
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Answer:
Inelastic demand occurs when changes in price cause a disproportionately small change in quantity demanded. For example, a good with inelastic demand might see its price increase by 30%, but demand drop by only 10% as a result.
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