Raising or Lowering Tuition Fees Nobody State University Essay
Price is a very sensitive aspect in any form of business units. Making a point to increase or reduce the cost of a commodity or a service might have great impacts on the levels of consumption(Depken, 2006). Measuring the relationship that exists between the change in price and levels of consumption of goods and services can be referred to as price elasticity. Sensitivity in prices and services in microeconomics is referred to as price elasticity of demand (Wilson, 2004 ). It is determined by evaluating the change in the amount of goods and services demanded against the change in the price of the goods or service.
The price elasticity of demand is a crucial aspect of determining the way demand responds to the changes in price for products and services (Bond Et al., 2006 ). There are three different states of elasticity in demand which include: relative Inelastic, relative elastic, perfectly elastic and perfectly inelastic demand.
When a firm considers changing the price for their services or goods, they must have a clear picture of the effects that the change will have on the total revenue. Revenue is achieved simply by calculating the product of the quantity of goods or services and their unit prices. Any change in the price of a service will have two different effects: the price effect and the quantity effect. For the price effect, increasing the unit price of a product or service will lead to an increase in the revenue earned, while decreasing the price results in reduced revenue. For elastic goods, the change in price affects the amount of revenue earned in the opposite trend.
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