Economics
posted by Max .
Suppose a university decides to alter its tuition schedule by separating its students based on how many years of college they have completed. Most university programs require four years to complete. Firstyear students would get a 13% tuition reduction. Secondyear students would pay the normal tuition. Third and fourthyear students face an increase in tuition of 25 and 41%, respectively. Fully explain whether this pricing strategy is based on a sound understanding of price elasticity of demand, or not.
This is what I have so far:
Firstyear students are based upon elastic demand while third and fourthyear students represent an inelastic demand.
At first, colleges reduce tuition to get students to attend their university. However, once students are respectively halfway through, the college increases tuition because at this point, students need their college degree, no matter the price.
(So basically, the college does have a sound understanding of price elasticity of demand.)
Am I answering this correctly so far?
Thanks
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