Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is
A)decreasing.
B)relatively elastic.
C)perfectly elastic.
D)relatively inelastic.

Question

Quizplus · Accepted Answer

GSU's assumption that raising tuition will increase revenue implies that they believe the demand for education at their institution is relatively inelastic. This means they expect that the percentage decrease in quantity demanded (enrollment) will be less than the percentage increase in price (tuition), leading to higher overall revenue. Elasticity of demand measures how sensitive the quantity demanded is to a change in price. If demand were elastic, an increase in tuition would lead to a proportionally larger decrease in enrollment, reducing revenue.

Gigantic State University Raises Tuition for the Purpose of Increasing