Elasticity of Demand

Questions you will be able to answer:

  1. What impact does price have on demand?
  2. How can we measure the impact a price increase or decrease will have on demand?
  3. How can decision makers use this information?

Elasticity of Demand

Coefficient of demand = (% change in demand / % change in price)

Inelastic demand: Coefficient of demand < 1

Elastic Demand: Coefficient of demand > 1

Unitary Demand: Coefficient of demand = 1

Additional Practice and Review
Read Pages 95-97
Check Your Understanding 1-4

 

The Case Study Method

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First Run on Wednesday – Topic: University Tuition Rates

Case Conference: Thursday and Friday Next Week

Guiding Questions:

1. EXPLAIN, USING SUPPLY AND DEMAND ANALYSIS, WHY THE PRICE OF TUITION HAS BEEN INCREASING SO RAPIDLY.

2. DO YOU THINK A) THE SUPPLY AND B) THE DEMAND FOR A POST- SECONDARY EDUCATION IS PRICE ELASTIC OR INELASTIC? JUSTIFY YOUR CHOICES AND EXPLAIN WHETHER THIS MEANS ANY GIVEN CHANGE IN SUPPLY OR DEMAND WILL HAVE A BIGGER EFFECT ON THE EQUILIBRIUM PRICE.

3. IN WHAT WAYS IS THE MARKET FOR POST SECONDARY EDUCATION DIFFERENT/SIMILAR TO A PRODUCT SUCH AS GASOLINE OR FOOD?

4. HOW MIGHT GOVERNMENTS WITH DIFFERENT ECONOMIC SYSTEMS REACT TO AN INCREASE IN THE PRICE OF TUITION?

5. WHAT OPTIONS ARE AVAILABLE TO GOVERNMENTS TO DEAL WITH THE RISING COST OF TUITION? PROVIDE EXAMPLES AND YOUR CRITIQUE OF THE APPROACH.

6.WHAT DO CONTEMPORARY AND HISTORICAL ECONOMISTS HAVE TO SAY ABOUT THE ISSUE?

 

Additional Readings:

The World is Going to University

Time to End The Academic Arms Race