Question

As the price of tickets rises from $250 to $300, the price elasticity of demand for business travelers is , and the price elasticity of demand for vacationers is , using the midpoint method. Therefore, the demand for airline tickets in this price range is elastic for vacationers because business travelers are sensitive to changes in price.

Answer 1

Answer:

Price             Quantity demanded                   Quantity demanded

                     business travelers                      vacationers

$150                 2,100                                            1,000

$200                2,000                                             800

$250                1,900                                              600

$300                1,800                                              400

using the midpoint method:

• price elasticity of demand for business travelers = {(1,900 - 1,800) / [(1,900 + 1,800) / 2]} / {(250 - 300) / [(250 + 300) / 2]} = (100 / 1,850) / (-50 / 275) = 0.054 / -0.182 = -0.3

• price elasticity of demand for vacationers = {(600 - 400) / [(600 + 400) / 2]} / {(250 - 300) / [(250 + 300) / 2]} = (200 / 500) / (-50 / 275) = 0.6 / -0.182 = -3.3

Therefore, the demand for airline tickets in this price range is elastic for vacationers because business travelers are sensitive to changes in price? FALSE, the demand for airline tickets for vacationers is elastic because vacationers are very sensitive to the changes in price, while business travelers aren't.