Question

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?

a. The mayor would be correct if demand were price elastic; the city manager would be correct if demand were price inelastic.

b. The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.

c. Both the mayor and city manager would be correct if demand were price elastic.

d. Both the mayor and city manager would be correct if demand were price inelastic.

Answer 1

b. The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.

Step-by-step explanation:

-An elastic demand is when the change in the price generates a high percentage change in the quantity demanded.

-An inelastic demand is when the change in the price generates a low percentage change in the quantity demanded.

According to this, the answer is that the mayor would be correct if demand were price inelastic because the increase in price won't generate an important change in the demand which allows to increase the revenues and the city manager would be correct if demand were price elastic because the decrease in the price would generate a higher change increasing the demand which can allow to raise revenues.