Price Elasticity Of Demand In Economics

1033 Words3 Pages
bulb-icon

Recommended: Cause and effect of rising college tuition

In the world of economics, the concept of price elasticity of demand is an essential part of determining the price of goods and services. This concept is utilized by various organizations, including private and corporate businesses, and educational institutions. In today’s economy, universities or colleges are being examined for their tuition cost. Tuition cost is determined by various determinants that affects the overall price elasticity of demand. In the case of the Nobody State University, the school 's increased its tuition, which resulted in a loss of total revenue. While evaluating the recent tuition increase, an analysis of the effects of elastic and inelastic demand on the university’s total revenue also illustrates various outcomes. …show more content…

When measuring the development and constancy of a company’s revenue, economic conditions differentiates the price elasticity of demand (Acquaah & Gelardi, 2008). Factors that play a role in this analysis includes the slope of the linear curve, the size of the quantity and the price of the product. The coefficient of price elasticity of demand or Ed is always a negative number and is calculated by dividing the change in the quantity of demand (%) by the change in price (%). The components of this formula includes “Ed equals Elasticity, ∆ equals Change, Q_(a^d )equals Quantity Demanded of a Good and P equals price.” (Amacher & Pate, 2013, Sect …show more content…

An elastic demand occurred due to an increase in tuition price, which had a significant impact on quantity demand of students enrolled at the University. The price elasticity of demand is 1.2 and implies that for every 1 percentage point tuition price increases, it will lower the quantity demanded of students enrolled at the university by 1.2 percentage point. Although the coefficient of price elasticity of demand or Ed is a negative value, it is important to emphasize on the amount of change by disregarding the minus sign and use an absolute value. Therefore, the absolute value of -1.2 is 1.2, which is greater than 1, reflects an elastic demand and a price elasticity of demand of 1.2. “Whenever the absolute value of demand is greater than one, price decreases will increase revenue.” (Dickinson, 2002, pg. 145). For this reason, Nobody State University need to lower tuition cost and by reducing tuition cost, the demand of students enrolling at Nobody State University increases; which would result in a rise in total

Show More
Related

  • International Students and the Right of Working While Studying in USA

    1102 Words  | 3 Pages

    In all colleges in the United States, students are required to pay for their classes’ tuition either by themselves, their parents, guardians or a scholarship that they may have. The average tuition fee for an individu...

    Read More

  • Price of College Education

    1482 Words  | 3 Pages

    Tuition is the cost to take classes at a college or university and is the most expensive part of a college education as it makes up 60 % of the overall price tag (Bashkar and Gopalan). Tuition has become increasingly more expensive over the years and has increased by nearly 500% since 1986, which is far more than inflation or tuition (Willie). The question is, why has there been such a mas...

    Read More

  • Rising College Tuition

    736 Words  | 2 Pages

    According to the Bureau of Labor Statistics, college tuition and relevant fees have increased by 893 percent (“College costs and the CPI”). 893 percent is a very daunting percentage considering that it has surpassed the rise in the costs of Medicare, food, and housing. As America is trying to pull out of a recession, many students are looking for higher education so they can attain a gratified job. However, their vision is being stained by the dreadful rise in college costs. College tuition is rising beyond inflation. Such an immense rise in tuition has many serious implications for students; for example, fewer students are attending private colleges, fewer students are staying enrolled in college, and fewer students are working in the fields in which they majored in.

    Read More

  • Fighting the Cost of College Tuition

    1793 Words  | 4 Pages

    College tuition is a hot topic these days. For a long time, people did not pay much attention to tuition. Today, things are changing. More and more, people are realizing how high tuition has gotten and now they want that to change. In the following essay, I have tried to tackle a very difficult topic. The problem with this topic was that, during research, I found that almost all of the information regarding it was attack after attack on the college administrations. I found no writings by college administrators even attempting to defend themselves. I discovered the awful truth about how much college tuition had gotten out of control over the years.

    Read More

  • Rising Tuition Prices

    2184 Words  | 5 Pages

    The skyrocketing price of college tuition is causing a tremendous concern over whether higher education will be a viable financial concept to the average citizen over the next decades. Some families have opted to explore different means of obtaining a higher education for their children as these costs escalate. There is overwhelming evidence that colleges need to restructure the way they are run because tuition prices are increasing at a rapid rate causing changes in the way students fund their education and in the way the government provides educational subsidies.

    Read More

  • Rising Tuition Prices

    1394 Words  | 3 Pages

    From conducting this survey, I learned that many students,whether they attend a public or a private school are unsatisfied with the rising tuition prices. The findings support my hypothesis. The next step in this research would to ask more college students about their thoughts and opinions about rising tuition prices. I would ask more students from different types of college and students taking on different types of degree. An implication this research could have for other research is that rising tuition prices are hurting students financially.

    Read More

  • Why College Is Not Worth It Essay

    1068 Words  | 3 Pages

    The price of a four year institution has soared over three hundred percent in the past twenty-five years or so. We would have to factor in general inflation numbers in order to figure out the real significance. After that, we see that in those twenty-five years, tuition has risen at a rate of two to four times that of the national inflation. That has not been the case with college, however, as enrollments only continue to go up. Ultimately this means that families are paying for a luxury they can no longer afford with money they don’t have. Families are looking at an expense that is thirty-eight

    Read More

  • Increased Tuition in the US

    914 Words  | 2 Pages

    One cause of increased tuition is the reduction of state and federal appropriations to state colleges, causing the institutions to shift the cost over to students in the form of higher tuition. State support for public colleges and universities has fallen by about 26% per full time student since the early 1990s. In 2011 American public universities took in more revenue from tuition than state funding. About 80% of American college students attend public institutions. In a financial bubble, assets like houses are sometimes purchased with a view to reselling at a higher price, and this...

    Read More

  • Elasticity Of College Tuition

    220 Words  | 1 Pages

    Tuition elasticity is measured by the reaction of a student’s enrollment to changes in a college tuition cost. Essentially will the increase in tuition cost cause students to not enroll, therefore not further their education? In my opinion the answer is “no”. Yes, students will respond to price increases, but no in the same manner as stick of deodorant increasing. Knowing that higher education is imperative, universities seek the opportunity to boost prices due to student’s willingness due still enroll. This demand for a college education makes tuition inelastic. In addition to tuition, I would also say the cost of illegal drugs is also inelastic. The purchaser of an illegal substance is not going to be responsive to an increase, due to drugs

    Read More

  • Essay On College Tuition

    1005 Words  | 3 Pages

    With the rapid growth of college tuition, it has become an important issue in higher education. College Tuition is simply defined as the charge or fee for instruction, at a private school or a college or a university. Most people agree today that college tuition is too high or that it needs to be completely dismissed. There are some however, that may disagree with the claim about college tuition and state that college tuition is necessary for college growth, and it’s primary purpose is to pay for college expenses to support the institution financially. Research shows that college tuition is too high and that debt has become a standard in America after attending post-secondary school.

    Read More

  • Elasticity

    966 Words  | 2 Pages

    Elasticity is also prominent to businesses. The price elasticity of demand is very important for companies to determine the price of their products and their total sales and revenue. Newell showed that by cutting the price of the Left 4 Dead game in half to $25 during a Valve promotion, its sales increased by 3000 percent (Irwin, 2009)viii.

    Read More

  • Coca Cola Price Elasticity Of Demand Analysis

    1580 Words  | 4 Pages

    When demand is elastic as with Coca Cola products price changes affect total revenue. When the price increases revenue decreases and when the price decreases revenue increases. For Coca Cola if they notice a decrease in revenue they would offer products at a discount to increase revenue. They do this quite often with sales such buy 2 20 oz. bottles for $3 instead of the normal $1.89 each price

    Read More

  • Demand Analysis: Price Elasticty

    1719 Words  | 4 Pages

    Commercial firms use Price Elasticity to manage pricing and production decisions, especially in industries where the growth in sales and revenues are the primary measure of a firm’s success. Knowledge of the Price Elasticity for a product or service enables managers to determine the pricing strategy required to get the sales results desired. For example, a firm with a product with a relatively high elasticity would know that a large sales increase can be created with a small price decrease. Conversely, a firm with an inelastic product knows that changes in pricing would have minimal effect on sales.

    Read More

  • Toyota Products, Services, and Prices

    1088 Words  | 3 Pages

    One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a product's price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.

    Read More

  • Importance Of Supply And Demand

    1164 Words  | 3 Pages

    For example, the chart would reflect the correlation between demand and the products price, or in the case of supply, the supplied products and its price. Moreover, supply, demand, and price, along with supply elasticity can be graphed and analyzed. This particular method of tracking and analyzing data is essential in identifying the markets status and determining the best plausible route (Skousen, 2014). By studying supply and demand, one is also able to identify whether an excess or a shortage in demand or supply is occurring, or whether an equilibrium has been attained. Consequently, it is evident that supply and demand take part in the market economy and greatly influence and impact the price value. Furthermore, to express how supply and demand impacts the price value, the price value of airline tickets will be utilized as an

    Read More

More about Price Elasticity Of Demand In Economics

Open Document