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Homework answers / question archive / Suppose the University of Oklahoma decides to alter its tuition schedule by separating its students based on how many credit hours they have accumulated
Suppose the University of Oklahoma decides to alter its tuition schedule by separating its students based on how many credit hours they have accumulated. Students with fewer than 15 credit hours get a 13% reduction in tuition while students with 45-90 and more than 90 credit hours face an increase in tuition of 22 and 71%, respectively. Fully explain whether this pricing strategy is rooted in a sound understanding of the price elasticity of demand, or not.
To answer this question, we need to identify which group of students considers taking classes more of a necessity: those at the beginning of their academic career or those nearing the end of their bachelor degree. I would argue that students with more than 90 hours would have the most inelastic demand for classes. At that point in their career they are not only close to graduating, but the opportunity cost of switching degrees or switching colleges is quite high. Many of them will already be interviewing for jobs for which the completion of their degree is a requirement. It makes sense to charge these types of student more tuition, since the college is unlikely to see a huge drop in their demand for classes. In fact, the college's revenue from these students will likely increase. Conversely, if the college raised tuition on those just starting their academic careers, these students would be more likely to transfer to another school or quite their college career altogether. Lowering their cost of attending should do the opposite by boosting enrollment. Thus, this pricing strategy is sound.
