Answer to Question #171482 in Microeconomics for Andrew

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):

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