A recent study at a liberal arts college concluded that demand elasticity is 0.91 for college courses. The administration is considering a tuition increase to help balance the budget. What might an economist advise the school to do?
A) Leave tuition unchanged, as a change in tuition is unlikely to enhance the school's budget by increasing revenue.
B) Decrease tuition because demand for courses is elastic.
C) Decrease tuition in order to increase revenue by boosting enrolment.
D) Increase tuition in order to increase revenue.

Question

Quizplus · Accepted Answer

A demand elasticity of 0.91 indicates that demand for college courses is relatively elastic, meaning that a change in price will have a significant impact on enrolment. Therefore, an economist would likely advise the school to increase tuition in order to increase revenue. However, the increase should be carefully considered and not too steep, as a drastic increase could decrease enrolment enough to offset the revenue increase.

A Recent Study at a Liberal Arts College Concluded That