question archive In fall 2006, Pace University in New York raised its annual tuition from $24,250 to $29,000
In fall 2006, Pace University in New York raised its annual tuition from $24,250 to $29,000
Subject:EconomicsPrice:2.88 Bought3
In fall 2006, Pace University in New York raised its annual tuition from $24,250 to $29,000. Freshman enrollment declined from 1,500 in fall 2005 to 1,100 in fall 2006. Assuming that the demand curve for places in the freshmen class at Pace did not shift between 2005 and 2006, use this information to calculate the price elasticity of demand for the fall of 2006 .
Use the midpoint formula in your calculation.
(Hint: include the negative sign and enter your response rounded to two decimal places.)
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The mid point formula of elasticity of demand:
Elasticity = (Q2 - Q1)/ (Q2+Q1)/2 / (P2 - P1)/ (P2 + P1)/2
Where, P1 = $24250
P2 = $29000
Q1 = 1500
Q2 = 1100
Putting the above values in the elasticity formula we have,
Elasticity = (1100 - 1500)/ (1100 + 1500)/2 / (29000 - 24250)/ (29000 + 24250)/2
Elasticity = -400/ 1300 / 4750 /26625
Elasticity = -0.30 / 0.178
Elasticity = -1.68
Hence the elasticity of demand in this case is equal to -1.68. A value of elasticity greater than 1, indicates that the demand is relatively elastic in nature.
