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. An economist might advise the school to:
A)decrease tuition in order to increase revenue by boosting enrollment.
B)increase tuition in order to increase revenue.
C)leave tuition unchanged as a change in tuition is unlikely to enhance the school's budget by increasing revenue.
D)decrease tuition because demand for courses is elastic.

Question

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. An economist might advise the school to:
A)​decrease tuition in order to increase revenue by boosting enrollment.
B)​increase tuition in order to increase revenue.
C)​leave tuition unchanged as a change in tuition is unlikely to enhance the school's budget by increasing revenue.
D)​decrease tuition because demand for courses is elastic.

Quizplus · Accepted Answer

Since the demand elasticity is less than 1 (0.91), it indicates that demand is inelastic. This means that a percentage increase in tuition will lead to a smaller percentage decrease in quantity demanded, potentially increasing total revenue. Therefore, increasing tuition could be a viable strategy for enhancing the school's budget.

A Recent Study at a Liberal Arts College Concluded That