Question

If the price increases from $ 1.50 to $ 2.50, what would be the price elasticity of the demand of the faculty and students? (use the midpoint method for your calculations) What reason could there be for students to have a different elasticity to faculty?

Price	amount demand (Faculty)	amount demand (students)
$1.00	500	5,000
$1.50	450	4,000
$2.00	400	3,000
$2.50	350	2,000

Answer 1

From the above question, we have to calculate the elasticity of demand when the price increases from $1.5 to $2.5 using the midpoint method.

Price	Demand (Faculty )	Demand (Students)
$1.50 (P1)	450 (Q1)	4000 (Q1)
$2.50 (P2)	350 (Q2)	2000 (Q2)

Price elasticity of demand for faculty (midpoint method)

% change in quantity demanded =

% change in Price =

Price elasticity of demand for students (midpoint method)

% change in quantity demanded =

% change in Price =

Price elasticity of Demand (Faculty)	Price elasticity of Demand (Students)
0.5	1.33

From the above table, it is clear that the price elasticity of demand in case of students is greater than faculty (0.5 < 1.33).

It means that there is a major impact on the demand of students as compared to the faculty due to the change in price, As due to an increase in price from $1.50 to $2.50, the demand of students decreased from 4000 to 2000 that means 50% decrease whereas the demand of faculty decreased from 450 to 350 that means 22.22% decrease, hence students are more price sensitive as compared to faculty.