ECON CREW: real life "marginal" thinking? - Page 2

Ardentfrost · 10-30-2007, 02:08 PM

Originally Posted by dpakman91

well, what i'm getting is that if the demand elasticity is -0.5, basically for every 1% price increase, there will be a 2% demand decrease. Therefore, to get applications to increase 6%, there needs to be a 12% price decrease, which would make tuition $16,720.

Am i missing something? It seems almost too easy.

wouldn't that be a 3% price decrease? They're wanting demand to decrease by -6%, so they need the price to increase by -3%. Putting it that way lines up better with how you outlined the elasticity.

dpakman91 · 10-30-2007, 03:00 PM

Originally Posted by Publius

will that make total revenue rise? if not, yes.

that depends on the acceptance rate, but that's not part of this equation. the idea is to get applicatons to rise. revenue wasn't an issue on this one.

dpakman91 · 10-30-2007, 03:03 PM

let me back up. The formula for Elasticity is % change in quantity demanded divided by % change in price.

If that is equal to -0.5, that means that a 1% increase change in Qd will comes as a result of a 2% decrease in price, no? 1/-2 = -0.5.

So, to get an increase of 6%, we need:

-0.5 = 6/x

x is there for -12%. I'm not sure, am i doing this wrong?

Ardentfrost · 10-30-2007, 06:52 PM

Originally Posted by dpakman91

let me back up. The formula for Elasticity is % change in quantity demanded divided by % change in price.

If that is equal to -0.5, that means that a 1% increase change in Qd will comes as a result of a 2% decrease in price, no? 1/-2 = -0.5.

So, to get an increase of 6%, we need:

-0.5 = 6/x

x is there for -12%. I'm not sure, am i doing this wrong?

You're probably right. I was just basing it on how you described it the first time

avsp · 10-31-2007, 09:56 AM

i'm assuming 'new balance' sneakers are high end.

Isnt the idea of branding to decrease price resonsiveness & thus they'd be more inelastic than sneakers as a whole?

In a way there are no substitues for 'New Balance' sneakers

This is how a premium can be charged gor branded goods for part of the 'utility' is the products 'coolness'

I may well be wrong on this.