Assignment Solution: Elasticity and Tuition

In Part 1, students will hypothesize about whether or not tuition is elastic or inelastic and why. In Part 2, students will calculate the elasticity of demand using the numbers given.

[latex]\begin{array}{rcl}\text{Percent change in quantity}&=&\large{\frac{9,000-10,000}{{19,000}\div{2}}} \\ \text{Percent change in price}&=&\large{\frac{$4800-$4000}{{$8800}\div{2}}} \\ {\text{Price Elasticity of Demand}}&=&\large{\frac{-1,000/9,500}{$800/$4400}}\\&=&\large{\frac{-.10}{0.18}}\\&=&-0.55 \end{array}[/latex]

This is inelastic. Total revenue will increase because a given % rise in price will cause a smaller % fall in quantity. Total revenue in this example increases from 40 million to 43.2 million.