Answer to Question #253204 in Microeconomics for Muskan

Question

Question:

Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:

PriceQuantity Demanded (business travelers)Quantity Demanded (vacationers)$150 2,100tickets 1,000tickets 200 2,000 800 250 1,900 600 300 1,800 400a. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (ii) vacationers?

Answer 1

$e_(p) = \frac{dQ}{Q}/\frac{dP}{P}$

Where:

$e_(p)$ - price elasticity

$Q$ - Quantity f the demanded good

$P$ - Price of the demanded good

(I) Price elasticity of demand for business travelers

Price elasticity of demand $=\frac{1,900 -2,000}{1,900+2,000}/\frac {250-200}{250+200}$

Price elasticity of demand $= \frac{-100}{3,900}/\frac{50}{450} = -0.2307$

$e_(p) = 0.2307$

(ii) Price elasticity of demand for vacation travelers

Price elasticity of demand =$=\frac{600-800}{600+800} /\frac{250-200}{250+200}$

Price elasticity of demand =$= \frac{-200}{1400}/\frac{50}{450} = -1.2867$

$e_(p) =1.2867$