Question

Suppose a university significantly increases tuition. Which group of students would have a greater elasticity of demand for acquiring their degree from this particular institution; students just entering their first semester of college or students approaching graduation?

You must use the concept of elasticity to explain your answer. Explain your answer with appropriate detail.

• Providing a substantive response of not less than 75 words.
• Applying economic concepts when applicable.

Answer 1

Ans:-The students just entering their first semester has not yet invested much for the college education and have more substitute colleges available which offer tuition at lower rates. So they will be more price-sensitive and will have greater elasticity of demand. But the group of students approaching graduation have already invested much explicit and implicit cost for the degree, and leaving the college due to higher fees just on verge of graduation will cause them a much bigger loss. So they are less sensitive to increase in tuition since they have no substitutes left, and will have lower elasticity of demand.

As the university has increased it's tuition fee, it would become expensive for students to study there. Therefore, students approaching graduation would have higher elasticity as they have no other option but to complete there graduation at university, whereas student entering the university would not have such high elasticity as they have the option to choose another university.