Calculate annual elasticities for both types of quantity variables (i.e., you will have an elasticity of price vs. headcount, and one of price vs. credit hour).
You will get an error message in your calculations when the tuition doesn’t change from 2006-2007 since the elasticity calculation will be trying to divide by zero; just delete those in your Excel table so that the cells are blank.
The first headcount elasticity will be calculated based on the 2000 and 2001 values of tuition and headcount and should be about -0.008; the first credit hour elasticity will also be based on the 2000 and 2001 values and should be about 0.359).
Calculate the average elasticity for headcount (from 2001-2016), and the average elasticity for credit hour (from 2001-2016).
The credit hour elasticity between the years 2007-2008 is approximately equal to
The average headcount elasticity (between 2001 and 2016) is approximately _______. Demand in terms of headcount would be considered ________.
a. -0.187; elastic.
b. -0.251; elastic.
c. -0.202; inelastic.
d. 2,775; inelastic.
The average credit hour elasticity (between 2001 and 2016) is approximately _______.
a. 0.034; this is unexpected since the law of demand suggests the relationship should be negative.
b. -1.04; this does a good job of demonstrating that a college education is a substitute for a high school education.
c. 0.359; this demonstrates that increases in tuition are a sign of quality, resulting in more credit hours pursued.
d. -0.039; this is unexpectedly low (close to zero), but still negative and consistent with the law of demand.
Many administrators argue that, to increase revenue to LSUS to cover budget shortfalls, tuition should be raised. The headcount elasticity estimate (average from 2001-2016) suggests that
a. raising tuition will increase headcount, since the elasticity is unexpectedly negative.
b. tuition should only be decreased, since the elasticity value is negative. Raising tuition will only decrease the headcount and thus the amount of revenue LSUS earns.
c. increasing tuition will reduce enrollment, but the increase in price should be greater than that reduction since headcount demand is inelastic (in the data analyzed above). Raising tuition in a situation of inelastic demand would increase the revenue of LSUS, even if it reduces the number of students.
d. raising tuition would be detrimental to LSUS’ budget, since the law of demand, and the negative headcount elasticity, says that fewer students will enroll as a result. A smaller headcount would mean less revenue for LSUS.