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 1,800 400 ( 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?

Answer 1

1) Price elasticity of demand for business travellers.

Formula.

Percent change in quantity demanded/percent change in price.

Percent change in quantity demanded $= \frac{q_2-q_1}{q_1}$

$=\frac{2000-1900}{2000} \\ =\frac{100}{2000} \\ =0.05$

Percent change in price $= \frac{p_2-p_1}{p_1}$

$=\frac{200-250}{200} \\ =\frac{-50}{200} \\ =-0.25$

Therefore.

$\frac{0.05}{-0.25}=-0.2$

Therefore price elasticity of demand for business travellers=-0.2

2) For vacationers.

Percent change in quantity demanded

$= \frac{800-600}{800} \\ =\frac{200}{800} \\ =0.25 \\ \frac{0.25}{-0.25} =-1$

Therefore price elasticity of demand for vacationers=-1