When universities announce a large tuition increase and follow it with an announcement that more financial aid will be available, they are assuming that students who pay full tuition:
A) have elastic demand and students who use financial aid have inelastic demand.
B) have inelastic demand and students who use financial aid have elastic demand.
C) view a college education as an inferior good and students who use financial aid view it as a normal good.
D) view a college education as a normal good and students who use financial aid view it as an inferior good.

Question

Quizplus · Accepted Answer

The assumption is that students who pay full tuition have inelastic demand, meaning they are less sensitive to price changes, while students who rely on financial aid have elastic demand, meaning they are more sensitive to price changes.

When Universities Announce a Large Tuition Increase and Follow It