Question

A private university charges the same tuition for both in-state and out-of-state students, and it notices that in-state and out-of-state students seem to respond differently to tuition changes. The quantity demanded for in-state and out-of-state students at different tuition levels is provided below. Tuition Quantity demanded (in-state applicants) Quantity demanded (out-of-state applicants) $10,000 6,000 12,000 $15,000 5,000 9,000 $20,000 4,000 6,000 $30,000 3,000 3,000 As the price of tuition rises from $20000 to $30000, the price elasticity of demand for tuition for out-of-state applicants is _____ elastic than it is for in-state applicants. Choose one: A. more B. less Part 2 (2 points) What is the in-state elasticity and the out-of-state elasticity? Give your answer to two decimals. In state:

Answer 1

Answer:

1.) As the price of tuition rises from $20000 to $30000, the price elasticity of demand for tuition for out-of-state applicants is more elastic than for in-state applicants.

2) in-state = 0.5; out-of -state = 1

Explanation:

Given the following :

Tuition Quantity demanded (in-state applicants) Quantity demanded (out-of-state applicants) $10,000 6,000 12,000 $15,000 5,000 9,000 $20,000 4,000 6,000 $30,000 3,000 3,000

Elasticity of demand = (percentage change in quantity demanded / percentage change in price)

% change in quantity demanded :

(Quantity change / Initial quantity) × 100%

[(Q2 - Q1) / Q1] × 100%

%change in price :

[(P2 - P1) / P1] × 100%

As tuition rises from $20000 to $30000

In state applicants :

%change in price :

[(P2 - P1) / P1] × 100%

[ (30000 - 20000) / 20000) × 100%

((10000)/ 20000) × 100%

= 50%

% change in quantity demanded :

(Quantity change / Initial quantity) × 100%

[(Q2 - Q1) / Q1] × 100%

Decrease in quantity demanded

[(3000 - 4000) / 4000] × 100%

(-1000/4000) × 100% = 25%

Elasticity of demand = 25% / 50% = 0.5

Out - Of - State applicants :

% change in price from $20,000 to $50,000 = 50%

% change in quantity demanded :

Demand decrease from 6000 to 3000

[(3000 - 6000) / 6000) × 100%

(3000 / 6000) × 100%

(1/2) × 100% = 50%

Elasticity of demand = 50% / 50% = 1