The university hopes to raise more revenue by increasing parking fees.This plan will work only if:

A) the price effect is larger than the quantity effect.
B) the price effect is smaller than the quantity effect.
C) the price effect and quantity effect are the same.
D) there is no price or quantity effect.

Question

Uriel M.J. Rogers · Accepted Answer

Final Answer : A, Explanation :  If the price effect (increase in revenue per unit due to the price increase) is larger than the quantity effect (decrease in demand due to the price increase), then increasing the parking fees will lead to an overall increase in revenue. However, if the quantity effect outweighs the price effect, then the increase in fees may actually result in a decrease in revenue due to reduced demand for parking. Therefore, for the plan to work, the price effect must be larger than the quantity effect.

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