Quiz 7: Consumer Choice and Elasticity

Business

Revenue of Nowhere State University will increase if the students are ready to pay more amount as tuition fees and if increased price will not affect the number of enrollments, and the revenue will decrease if the number of student enrollment will decrease due to increase in tuition fees. Revenue will remain the same, if the new enrolled students pay more to balance the loss occurred from reduced enrollments. As we know that price elasticity of demand for enrollment is img , which is elastic in nature, hence increase in tuition fees will reduce the revenue.

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If the price of cigarette changes, the income effect will be much higher on low cost income group as compared to the high income group of smokers. The spending on cigarettes is a higher amount of the household budget for lower income smokers. So, the income effect will be larger for this group.

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