The relationship between price elasticity and revenue.
Explanation of Solution
The effect of an increase in tuition revenue depends on the
Price
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Chapter 20 Solutions
Economics: Private and Public Choice (MindTap Course List)
- 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_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_forward
- College 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_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_forwardThe 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_forward
- What 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_forwardSuppose Government of Pakistan wants to put a curb on public smoking. Studies indicate that the price elasticity of demand for cigarettes is about 0.5. If a pack of cigarettes currently costs Rs.200 and the government wants to reduce smoking by 20 percent, by how much should it increase the price?arrow_forward
- Suppose you are advising an industry association on the predicted effects of a price change on quantity demanded and total expenditure on its product. The current price is $1.20 per unit, and quantity demanded is 2500 units per day. Based on extensive empirical studies, you know that price elasticity of demand for the product is 0.7. If the price increases to $2.20 per unit, what is the predicted percentage change in quantity demanded? Will total expenditure increase or decrease? (Remember to use the averaging method to calculate the percentage change in price.) The predicted percentage change in quantity demanded is%. (Enter your response rounded to the nearest integer. Do not include a negative sign in your response.) Will total expenditure increase or decrease? Total expenditure is related with price because the price elasticity of demand is Question Viewer so total expenditure will 1arrow_forwardDisney just raised its 3 day 3 park pass from $110.00 to $121.00. Sales fell from 4,000 per week to 3,000 per week. Calculate the price elasticity of demand using the arc elasticity of demand formula. % change in quantity = 3,000 – 4,000 (3,000 + 4,000)/2 × 100 = 1,000 3,500 × 100 = 28.6% % change in price = 121-110 (121 + 110)/2 × 100 = 11 115 × 100 = 9.5% % Price Elasticity of Demand = 28.6% 9.5% = 3.01 What should they do next? (Hint – look at revenues)arrow_forwardThe weekly sales of Honolulu Red Oranges is given by q = 1026 - 19p. where q is the number of oranges sold at the price p dollars per orange. Find E(p) E(p) = Calculate the price elasticity of demand when the price is $36 per orange (yes, $36 per oranget). HINT [See Example 1.] Interpret your answer. The demand is going down v by x % per 1% increase in price at that price level. Use the elasticity to calculate the price that gives a maximum weekly revenue. x dollars per orange Find this maximum revenue. x dollars of revenuearrow_forward
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