Question

Price elasticities of demand have been estimated for selected modes of transport. The table below presents estimates for various modes of transportation. What determines these elasticities?

Q1) Price elasticities of demand have been estimated for selected modes of transport. The table below presents estimates for various modes of transportation. What determines these elasticities? Estimates of the Price Elasticity of Demand for Selected Modes of Transportation Category Estimated EQ,P Airline travel, leisure Rail travel, leisure Airline travel, business Rail travel, business Urban transit -0.70 between-0.04 and-0.34 Source: Elasticities from the cross-sectional studies summarized in Tables 2, 3, 4 in Tae Hoon Oum, W. G. Waters II, and Jong-Say Yong, "Concepts of Price Elasticities of Transport Demand and Recent Empirical Estimates," Journal of Transport Economics and Policy (May 1992): 139-154

Answer 1

1) Airline travel, leisure: The vacation travellers often pay lesser airline fares in comparison to business travellers. However since it is less than one thus indicates to be inelastic. The reason can be an increase in income. Also the travellers with higher incomes are likely to be less price sensitive than lower-income travellers

2) Rail travel, leisure: The leisure travellers often pay lesser airline fares in comparison to business travellers. However since it is less than one thus indicates to be inelastic. The reason can be an increase in income.

3) Airline travel, business: Business travellers often pay higher airline fares in comparison to vacation travellers. The reason is that the business travellers have less adaptable schedule. Time element is more vital than the price element, thus their demand is inelastic.

4) Rail travel, business: Business travellers often pay higher airline fares in comparison to vacation travellers. As business travellers have less adaptable schedule, thus their demand is inelastic.

5) Urban transit -0.70 between-0.04 and-0.34: Urban peak-period transits are likely to be price inelastic because congestion will discourage the lower-value trips