Question

A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, Due to the increase in tuition, how many of you will transfer to another university? One student out of about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is:
A 1.B highly elastic.C 0.D highly inelastic.

Answer 1

Answer:

Highly inelastic

Explanation:

Price elasticity of demand is a measure of the demand of a given service or commodity by utilizing it's price change. It can be calculated using the formula;

Price elasticity of demand=%change in quantity demanded/%change in price

%change in quantity demanded=((Final demand-Initial demand)/Initial demand)×100

((299-300)/300)×100=-0.33%

%change in price=12%

12%>0.33%

The change in price is larger than the change in demand, therefor the product is highly inelastic