Answer to Question #147934 in Microeconomics for Cyrille Pascual

Question

Imagine that there are currently 10,000 students enrolled at your institution. The school decides to increase tuition, and enrollment falls to 9,000. Tuition started at $4,000 per semester but has since gone up to $4,800. What is the elasticity of demand?

Answer 1

$Q_1 = 10000 \\ Q_2 = 9000 \\ P_1 = 4000 \\ P_2 = 4800$

Price elasticity of demand (using mid point formula):

$E = \frac{Q_2 – Q_1}{\frac{1}{2}(Q_2+Q_1)} \div \frac{P_2-P_1}{\frac{1}{2}(P_2+P_1)} \\ = \frac{9000 – 10000}{\frac{1}{2}(9000+10000)} \div \frac{4800-4000}{\frac{1}{2}(4800+4000)} \\ = \frac{-1000}{9500} \div \frac{800}{4400} \\ = -0.578$

Answer: -0.578