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?
Elasticity of demand depicts how much a consumer responds to change in price level.
(a)
(i)
For business travelers
(ii)
(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.
Comments
Leave a comment