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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Learn what price elasticity is. Discover how to find price elasticity of demand, study examples of price elasticity, and examine a price elasticity graph.


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