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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.