Question

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

As the price of tickets rises from $150 to $200, the price elasticity of demand for business travelers is (0.78, 0.17, 1, 1.28???) , and the price elasticity of demand for vacationers is (0.78, 0.17, 1, 1.28???) , using the midpoint method. Therefore, the demand for airline tickets in this price range is (less, more???) elastic for vacationers because business travelers are (less, more???) sensitive to changes in price.

Answer 1

1.Pnew=200

Pold=150

Pnew-Pold/Pold=200-150/150=.33

For business travelers

Qnew=2000

Qold=2100

Qnew-Qold/Qold=2000-2100/2100=-0.047

Ed=-.047/.33=-.14~.17

Answer=.17

For vacationers

Qnew=800

Qold=1000

Qnew-Qold/Qold=800-1000/1000=-.2

Ed=-.2/.33=.6~.78

Answer=.78

Elasticity for vacationers is more elastic because they are more sensitive to price change.