Question

The University you attend need to increase total revenue. The president suggests that by raising tuition by 10%, total revenue will increase. However, after the tuition increase, total revenue actually fell. You can infer about the price elasticity of demand for education in your university to be ______________

Answer 1

the PED is elastic (higher than |1| in absolute terms)

Step-by-step explanation:

for example:

you originally sell 100 units at $10 per unit, total revenue = $1,000

if the PED is inelastic, you increase the price by 10% and quantity demanded falls by 5%: total revenue = 95 x $11 = $1,045 (increased)

if the PED is elastic, you increase the price by 5% and the quantity demanded falls by 10%: total revenue = 90 x $10.50 = $945 (decreased)