Answer to Question #245733 in Microeconomics for shine

Question #245733

Suppose that business travelers and vacationers

have the following demand for airline tickets

from New York to Boston:

Quantity Demanded Quantity Demanded

Price (business travelers) (vacationers)

$150 2,100 tickets 1,000 tickets

200 2,000 800

250 1,900 600

300 1,800 400

a. As the price of tickets rises from $200 to

$250, what is the price elasticity of demand

for (i) business travelers and (ii) vacationers?

(Use the midpoint method in your

calculations.)

b. Why might vacationers have a different

elasticity from business travelers?


1
Expert's answer
2021-10-04T16:11:43-0400

Elasticity of demand depicts how much a consumer responds to change in price level.

(a)

Ed=Q2Q1Q2+Q12P2P1P2+P12Ed=\frac{\frac{Q_2-Q_1}{\frac{Q_2+Q_1}{2}}}{\frac{P_2-P_1}{\frac{P_2+P_1}{2}}}


(i)

For business travelers


Ped,Ed=190020001900+20002250200250+2002Ped,Ed=\frac{ \frac{1900-2000}{\frac{1900+2000}{2}}}{\frac{250-200}{\frac{250+200}{2}}}


Ed=0.23Ed=-0.23

Ed=0.23<1;inelastic|Ed|=-0.23<1; inelastic



(ii)

Ped,Ed=600800600+8002250200250+2002Ped,Ed=\frac{ \frac{600-800}{\frac{600+800}{2}}}{\frac{250-200}{\frac{250+200}{2}}}



Ed=1.29Ed=-1.29

Ed=1.29<1;inelastic|Ed|=-1.29<1;inelastic


(b)

Vacationers are casual with their plan whereas business travelers are traveling with business purpose thus their elasticity of demand for tickets is less affected with change in price.


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