Price Elasticity Of Demand In Economics

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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

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