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    Price Elasticity and Elasticity of Demand

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    1. What is price elasticity of demand?
    3. What does this mean?

    Discuss. Don't simply give your answer

    2. You are on a committee that is considering ways to raie tuition fees for your College. You would recommend increasing the price of tuition only if you thought the demand curve for tuition was:

    a. Inelastic

    b. Elastic

    c. Unitary elastic

    d. Perfectly elastic

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    Solution Preview

    1. What is price elasticity of demand?
    3. What does this mean?

    Price elasticity of demand quantifies the sensitivity or responsiveness of quantity demanded due to a change in price.
    Price elasticity of demand (PED) is computed using the formula:
    PED = Percentage change in quantity Demanded / Percentage Change in Price
    The PED coefficient is interpreted using these values:
    If PED > 1 demand is price elastic. This ...

    Solution Summary

    This is a simple analysis of two scenarios: price elasticity of used car and when to increase tuition fees.