Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter 20, Problem 1CQ
To determine
The relationship between price elasticity and revenue.
Expert Solution & Answer
Explanation of Solution
The effect of an increase in tuition revenue depends on the price
Economics Concept Introduction
Price elasticity of
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Students have asked these similar questions
Beginning with the Fall 2018 semester, three North Carolina universities (UNC Pembroke, Western Carolina University, and Elizabeth City State University) reduced their tuition. After the Fall semester had begun, each of these universities announced that they had experienced a large increase in enrollment.
Explain what these facts tell us about the price elasticity of demand for education at these universities.
Use your answer to part a. of this question to explain whether reducing tuition would lead to an increase, a decrease, or no change in the amount of revenue received by the universities.
Suppose you work for a local car parts supplier, and you’re looking at ways to increase revenue. You remember from your economics course, that people respond to price changes. You decide to test this theory. Assume, that as the price of an alternator falls from $40.00 to $38.00 the quantity of Y demanded increases from 110 to 118.
Then the coefficient of price elasticity of demand is:
If you want to increase revenue, you should:
e) Would you expect the own-price elasticity of demand to be higher for financial-aid students or for non-aid students (and does it depend on whether "own price" is gross tuition or net tuition?)? Why? What about the income elasticity?
Chapter 20 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- Suppose a movie theater raises the price of popcorn 10 percent, but customers do not buy any less popcorn. What does this tell you about the price elasticity of demand? What will happen to total revenue as a result of the price increase?arrow_forwardProve that price elasticity of demand is not the same as the slope of a demand curve.arrow_forwardThe figure to the right illustrates the demand for taxi rides in a large city. Suppose the price per ride is initially $50 but then falls to $35 due to a recession. What is the price elasticity of demand for taxi rides? (Enter your response rounded to two Using the midpoint formula, the price elasticity of demand is decimal places.) Demand is inelastic Price (dollars per taxi ride) 60 55 50 45 30 25 820- Q15- 10 54 04 0 A B 40.000 80.000 120.000 160,000 200,000 Quantity (taxi rides per day) D 240.000arrow_forward
- The figure to the right illustrates the demand for taxi rides in a large city. Suppose the price per ride is initially $50 but then falls to $5 due to a recession. What is the price elasticity of demand for taxi rides? Using the midpoint formula, the price elasticity of demand is (Enter your response rounded to two decimal places.) Price (dollars per taxi ride) 60- 55- 50- 45- 40- 35- 30- 25- 20- 15- 10- 5- 0- 0 A B D 40,000 80,000 120,000 160,000 200,000 240,000 Quantity (taxi rides per day) Qarrow_forwardHello. This is a microeconomics question pertaining to the price elasticity of demand. The question is: If the price of a good rises from $8.50 to $9.50, and the quantity sold increases from 1.2 billion to 1.4 billion (i.e. BOTH price and quantity increase), then we know that total revenue will increase. Therefore, what would you ESTIMATE the elasticity to be? Not looking for formal calculation, but just an intuitive answer. Second part of question is what assumptions or provisos would you offer about your estimate of elasticity? Thank you for any help.arrow_forwardCollege tuition has been rising at a faster rate than average prices for decades. Assess how the characteristics of the market for higher education have affected tuition. Your essay should address all of the following: Do you believe that the price elasticity of demand for college is elastic or inelastic? Discuss the factors that support your position. Do you believe that the price elasticity of supply for college is elastic or inelastic? Discuss the factors that support your position. What has happened to the demand for college over the last 20 years? Explain what resulted in this change. Does your previous answer regarding the price elasticity of supply help explain why tuition has risen so quickly? Explain your reasoning. Per-student, real government funding of higher education is lower now than it was in 2000. How would this reduced funding affect the supply of higher education? Explain. Does your previous answer regarding the price elasticity of demand help explain why tuition…arrow_forward
- A college raises its annual tuition from $23,000 to $24,000, and its student enrollment falls from 4,877 to 4,705. Compute the price elasticity of demand. Is demand for the college elastic or inelastic? As the price of good X rises from $10 to $12, the quantity demanded of good Y rises from 100 units to 114 units. Are X and Y substitutes or complements? What is the cross elasticity of demand? The quantity demanded of good X rises from 130 to 145 units as income rises from $2,000 to $2,500 a month. What is the income elasticity of demand for good X? The quantity supplied of a good rises from 120 to 140 as price rises from $4 to $5.50. What is price elasticity of supply of the good?arrow_forwardImagine you work as an economist for a particular airline (A). Your job entails estimating the passenger demand for airline travel provided by A. Accordingly, you estimate the following: Price elasticity of demand for A’s service = 3 Cross elasticity of demand for A’s service (with respect to airline B’s price) = 2 Income elasticity of demand for A’s service = 1 Making sure to show all of your work, if consumer income falls by 5% (due to a recession), and at the same time airline B lowers its price by 10%, all else equal, what would you specifically recommend A due to its price to maintain its quantity of passengers (i.e., lower or raise its price and by what percent)? Hint: Elasticities are ratios of percentage changes.arrow_forwardCalculate the Price Elasticity of Demand (PED) for diamond rings if there is. price increase from $10,000 to $12,000 and quantity demanded falls from 100,000 to 90,000. Does this answer support what we have learned about elasticity and what we might expect for diamond rings? If so, why? (You may wish to describe a diagram here if it helps clarify the answer)arrow_forward
- The formula for price elasticity of demand almost looks an average rate of change, the change in demand for a change in price, except that we're using percent change. With average rate of change, the order of the two points doesn't matter, as long as it is consistent. But with percent change, the order of points can matter, because we divide the change by the original quantity. For example, we looked at changes from 50 to 75 cents, so we divided by 50 cents. If we want to consider a price reduction from 75 cents to 50 cents, we would divide by 75 cents. Would the price elasticity of demand be the same? That's what you'll explore now. The formula would change to: (а — 2) / (p1 — рә) 92 P2 Using the two data points here, compute elasticity for Boston using the formula relative to the second point. Round your answer to the nearest hundredth. Boston Subway Fare Annual Ridership (in millions) Year 1980 0.50 158 1981 0.75 143arrow_forwardWhat would it mean if the elasticity of demand for a good was zero? Explain whether it can be possible for the price elasticity of demand for a good to be zero, at least over some range of prices. Can the elasticity of demand be zero for all possible prices? Explain how or why not.arrow_forwardElasticity Problem: Part One: Show your work - At Tumbleweed Tech Academy (because of budget restraints) the school was forced to raise tuition and fees from $1,000 to $1,600 per quarter. As a result of the result of the increased cost, enroll fell from 8,200 to 8,000. What is the price elasticity of demand? Part Two: Hard times caused total community income to fall by eight percent and this caused enrollment at TTA to rise from 8,000 to 8,400. What is the income elasticity and what does the sign mean. Part Three: Neighboring WSU dropped their tuition and fees by 14 percent and TTA saw enrollment fall from 8,400 to 7,400. What is the cross elasticity between the two schools.arrow_forward
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