ECO82001 Economics and Quantitative Analysis

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Economics Assignment Question

 
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 35% experienced an overall decrease in student applications of 7%.
 
1. What is the price elasticity of demand for courses at the universities that increased their fees by 35%?
2. Is the 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 35% fee increase at the universities that increased fees caused an overall increase in student applications of 12% 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? 

Economics Assignment Solution

 
Purpose
 
To calculate the elasticity of demand for university courses and conduct a thorough economic analysis of changes and effects based on the following assumptions:
 
  1. The universities that increased their fees by 35% experienced an overall decrease in student applications of7%.
  2. The 35% fee increase at the universities that increased fees caused an overall increase in student applications of 12% at those universities that did not increase their fees.
Method
 
Price elasticity of demand for courses at the universities that increased their fees by 35%
The price elasticity of demand measures the change in quantity demanded in response to a change in the price of a good or service, all other things remaining unchanged. It is computed as the percentage change in quantity demanded divided by the percentage change in price (Pettinger 2015).
 
According to the assumption made previously, the universities which increased their fees by 35% experienced an overall decrease in student applications by 7% that is the demand for courses decreased by 7%. Thus, the price elasticity of demand for courses in those universities in absolute terms is given by:
 
P.E.D= 7%/35% = 1/5 = 0.2
 
 
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