The city council of a small college town decides to reg- ulate rents in order to reduce student living expenses. Suppose the average annual market-clearing rent for a two-bedroom apartment had been $700 per monthof a substitute good. The price of the substitute good is $2.00.
a. Suppose P = $1.00. What is the price elasticity of demand? What is the cross-price elasticity of demand?
b. Suppose the price of the good, P, goes to $2.00. Now what is the price elasticity of demand? What is the cross-price elasticity of demand?