Question

Suppose the University of Oklahoma decides to alter its tuition schedule by separating its students based on how many credit hours they have accumulated. Students with fewer than 15 credit hours get a 13% reduction in tuition while students with 45-90 and more than 90 credit hours face an increase in tuition of 22 and 71%, respectively. Fully explain whether this pricing strategy is rooted in a sound understanding of the price elasticity of demand, or not.

Answer 1

Price Elasticity of Demand

Price elasticity of demand estimates the affectability of shoppers' amount demanded to changes in prices. In the event that a price increment causes a nearly bigger decline in amount demanded, a great is said to be flexible. In the event that a price increment causes a nearly littler abatement in amount demanded, a great is said to be inelastic. Merchandise that are to a greater extent a need and have less substitutes are bound to have inelastic demands.

Answer and Explanation:

To answer this inquiry, we have to distinguish which gathering of understudies considers taking classes to a greater degree a need: those toward the start of their scholastic profession or those nearing the finish of their four year college education. I would contend that understudies with over 90 hours would have the most inelastic demand for classes. By then in their profession they are near graduating, however the open door cost of exchanging degrees or exchanging universities is very high. A considerable lot of them will as of now be meeting for occupations for which the fulfillment of their degree is a prerequisite. It bodes well to charge these sorts of understudy more educational cost, since the school is probably not going to see a gigantic drop in their demand for classes. Truth be told, the school's income from these understudies will probably increment. On the other hand, if the school raised educational cost on those simply beginning their scholastic vocations, these understudies would be bound to exchange to another school or very their school profession out and out. Bringing down their expense of going to ought to do the inverse by boosting enlistment. Along these lines, this pricing methodology is sound.