Answer to Question #159882 in Microeconomics for hadia parveen

Question

Suppose that business travelers and tourists have the following demand for airline

tickets from Lahore to Karachi.

price Quantity demanded

(business travelers)

Quantity demanded

(tourists)

$150 2100 1000

200 2000 800

250 1900 600

300 1800 400

As the price of ticket rises from $200 to $300, what is the price elasticity of demand for

(i) Business travelers

(ii) Tourists

(Use the midpoint method in your calculations.)

Answer 1

(i) Let's calculate the price elasticity of demand for business travelers:

$$E_d=\dfrac{\dfrac{Q_2-Q_1}{0.5(Q_2+Q_1)}}{\dfrac{P_2-P_1}{0.5(P_2+P_1)}},$$ $$E_d=\dfrac{\dfrac{1800-2000}{0.5(1800+2000)}}{\dfrac{300-200}{0.5(300+200)}}=-0.26$$

(ii) Let's calculate the price elasticity of demand for tourists:

$$E_d=\dfrac{\dfrac{Q_2-Q_1}{0.5(Q_2+Q_1)}}{\dfrac{P_2-P_1}{0.5(P_2+P_1)}},$$ $$E_d=\dfrac{\dfrac{400-800}{0.5(800+400)}}{\dfrac{300-200}{0.5(300+200)}}=-1.66$$