Question

Actions for Discussion Activity #5 Assume the following planned changes in (market) prices: (i).A State (Public) University you are currently attending has decided to raise tuition by 10% next semester. (ii). The Parking department at the university will increase the parking fee for the guaranteed but limited parking space on campus by 20% next academic year. Your home town (where you commute from) is 25 miles away from campus. (iii). The Campus bookstore will increase the prices of new textbooks, which you are required to buy, by 25%, next semester. (iv) . Your favorite restaurants down town will raise their menu prices by 10%, next month. Assuming that you have a limited (fixed) amount of income, Indicate how you are likely to respond to the above price changes? Briefly explain whether (your) demand is “elastic” or "inelastic” ,in each of the above cases?

Answer 1

1) State public university decides to increase the fee by 10%: The demand for the tuitions from state university are inelastic that means no matter how much they increase the fee the students are forced to pay once they have taken admission in that university. With a limited income, the students will have to cut expenditures on other things and pay the increased fee.

2) Increased parking fee: Find other places to park and try coming to college early when we can get a parking place at not guaranteed places or share motorbikes or car with friend coming from the same place and pay the fee on alternate days with that friend or just use public transport which is cheaper and good for environment too. The demand is elastic in this condition.

3) Campus bookstore increased the price of books: The demand will be elastic, it will not affect the income as we can just move to other books store which is selling at a lower price.

4) Increased price by favorite restaurant: This will affect the income as that restaurant is frequently visited by me the demand is elastic and I have to reduce the amount of food I am ordering form that restaurant.