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
B)the city manager
C)The answer depends on the price elasticity of demand.
D)The answer depends on the costs of construction of the new municipal swimming pool.

Question

Quizplus · Accepted Answer

The correct answer depends on the price elasticity of demand for admission to the municipal pools. If demand for admission is elastic, the mayor's suggestion to raise prices would lead to a decrease in revenue as fewer people would be willing to pay the higher prices. On the other hand, if demand for admission is inelastic, the mayor's suggestion could lead to a revenue increase. Similarly, if demand is elastic, the city manager's suggestion to lower prices could lead to an increase in revenue, while if demand is inelastic, it could lead to a decrease in revenue. It is therefore necessary to have information on the price elasticity of demand before making a decision. The cost of construction of the new pool is not relevant to this decision.

A City Wants to Raise Revenues to Build a New