Question

7. Business travelers and vacationers have different demands for airline tickets. The following table shows the demand for tickets from Chicago to New York: Price Quantity Demanded (Business) $175 Quantity Demanded (Vacation) 2250 1250 $200 2200 1000 $225 2150 825 $250 2000 550 (a) As the price increases from $200 to $250, what is the price elasticity of demand for business travelers? What is the price elasticity of demand for vacationers? Use the midpoint formula provided in the lecture/notes/dispatch. Show your work. (Hints: Remember the order of operations and don't round until you get to the final answer.) (b) Why might elasticity be different for people traveling on vacation versus people traveling for business?

Answer 1

Price (B) Quantity demanded (Business colore - 2 2 L 200 P = 250 2200 02= 2000or azt Mid bunt formula Price elastity of demand for busines tot leg) - 92-01 (exto,/ : P.-P. (P&P)/2 - es - 20w -220, 250 (20w +220) (250 +200) 2100 -200 1.225 u nd bed root Price (8) Chughly demanded (Vacation) Cres alert lorried house Si=200 ansandar a low all clash rolari din P2 = 250 r otates U2 = 550 orl spilers Zauery i Mid point formula illt rely o n board alto altro the long to find modus rool Pre obetely of demand for vocaburet (eo). 43-00 - P - Bot Casta)/2 (Pzt 8.)/2

250-200 550-love 550 tio (250 +20 es - - 450 775 50 225 22S 735 po 2-2.60 6 Business travellers had inelastic demand and Vacation and had elastic demandi n n It means business travellers is les responsive to change in price of tasline ticket, and Vacation & is more monsive to change in price of airline tickets, Becuade business travellers can't wait for the ha large drop in airline tickets. Hence, it is less responsive to change in price of an line tickets. (Because they have to travell on urgent basis) On the other hand vacationes plan their vacation accordingly and can be brenochisato wait to a drop for a druß in wine kat__CO LLIDA