Question

38%Wed 9:09 PM Chrome Fle Edit View History Bookmarks People Window Help 181% Ch. 4, Elasticity Homework 01/21/19 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 Gin-state applicants $10,000 $15,000 $20,000 $30,000 Quantity demanded Quantity demanded (in-state applicants)(out-of-state applicants) 6,000 12,000 9,000 As the price of tuition rises from $10000 to $15000, the price elasticity of demand for tuition for out-of-state applicants is elastic than it is for in-state applicants Choose one 1819 cBook Pro 8

Answer 1

(Since no specific method of computing elasticity is mentioned, the standard Midpoint method of elasticity is used).

Elasticity of demand = (Change in quantity / Average quantity) / (Change in price / Average price)

(Part 1) Option (B)

When price rises from $10,000 to $15,000, In-State quantity demanded falls from 6,000 to 5,000 and Out-of-State quantity demanded falls from 12,000 to 9,000.

Elasticity, In-State = [(5,000 - 6,000) / (6,000 + 5,000)] / [$(15,000 - 10,000) / $(15,000 + 10,000)]

= (-1,000 / 11,000) / (5,000 / 25,000)

= -0.45

Elasticity, Out-of-State = [(9,000 - 12,000) / (9,000 + 12,000)] / [$(15,000 - 10,000) / $(15,000 + 10,000)]

= (-3,000 / 21,000) / (5,000 / 25,000)

= -0.71

Since absolute value of elasticity is higher for Out-of-State (0.71 > 0.45), Out-of-State has more elastic demand.

(Part 2)

Elasticity, Out-of-State = -0.71**

Elasticity, In-State = -0.45**

**If absolute values are to be entered, enter the values as 0.71 and 0.45 respectively.