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):

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