Suppose that business travelers and vacationers have the following demand for airline tickets...

Question:

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

Price Quantity 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? (Use the midpoint method in your calculations.)

b. Why might vacationers have a different elasticity from business travelers?

Price Elasticity of Demand:

The price elasticity of demand measures how sensitive consumers are to price changes of a certain good. The higher the value in absolute terms (PED is always negative), the more sensitive consumers are.

Answer and Explanation: 1

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a. (i) 0.2307

The price elasticity of demand for business travelers using the midpoint method is...

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Price Elasticity of Demand: Definition, Formula & Example

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Chapter 3 / Lesson 54
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Price elasticity of demand describes the response of consumers to changing prices of goods and services. Review the formula for price elasticity of demand, learn how certain products can be deemed elastic or inelastic depending on consumer sensitivity, and understand the importance of the concept.


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