As a policy analyst you have been asked to calculate the elasticity of demand for university courses. Questions 1 to 4 are based on the assumption that the universities that increased their fees by 30% experienced an overall decrease in student applications of 3%.
1. What is the price elasticity of demand for courses at the universities that increased their fees by 30%?
2. Is demand for these courses elastic or inelastic?
3. What factors do you think are responsible for this degree of elasticity?
4. Is tuition fee revenue likely to increase or decrease at these particular universities?
Questions 5 to 8 are based on the assumption that the 30% fee increase at the universities that increased fees caused an overall increase in student applications of 8% at those universities that did not increase their fees.
5. What is the cross-elasticity of demand for courses at universities that did not increase their fees with respect to the price of courses at universities that did increase their fees?
6. Are courses at different universities substitutes or complements?
7. Is demand for courses at the universities that did not increase their fees elastic or inelastic with respect to universities that did increase their fees? What is the importance of this degree of elasticity?
8. Finally, what are some of the factors that might cause the Minister for Education to argue that changes in demand for course are not necessarily related to the fee changes? Based on your economic analysis of the above issue, prepare a 1,200 word report using the following structure:
- Purpose
- Method
- Results
- Discussion
- Recommendations