Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Question
Chapter 20, Problem 1CQ
To determine
The relationship between
Expert Solution & Answer
Explanation of Solution
The effect of an increase in tuition revenue depends on the
Economics Concept Introduction
Price
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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:
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 $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
240.000
Chapter 20 Solutions
Economics: Private and Public Choice
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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 $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_forward
- Hello. 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_forwardA 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_forward
- Imagine 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_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_forward
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