Question

Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue. The airlines raise their prices on the assumption that:

Answer 1

Answer:

B) less price-elastic as departure time approaches.

Explanation:

Here are the options to this question :

A) steady in its price elasticity as departure time approaches.

B) less price-elastic as departure time approaches.

C) always unit elastic.

D) very sensitive to price changes as the time of departure approaches.

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

Price elasticity of demand = percentage change in quantity demanded / percentage change in price

If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes.  

Demand is inelastic if a small change in price has little or no effect on quantity demanded. The absolute value of elasticity would be less than one

Demand is unit elastic if a small change in price has an equal and proportionate effect on quantity demanded.  

As the departure date arrives, there would be less available flights and less time for travellers to make alternative travelling arrangements. As a result, they would be willing to pay any price. At this point, travellers would have a less elastic demand. that is they are less sensitive to price.