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When the price of a plane ticket rises from $200 to $250, the number of business...

When the price of a plane ticket rises from $200 to $250, the number of business travellers per month falls from 2000 to 1900. At the same time, the number of vacationers per month falls from 800 to 600.

a.Calculate the price elasticity for (i) business travellers and (ii)vacationers.[6marks]

b.State whether the elasticities for (i) business travellers and (ii) vacationers are

elastic or inelastic.[2 marks]

c.Analyse why there is a difference between price elasticities for business

travellers and vacationers.[3marks]

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Answer #1

ii) the elasticity for business travellers is inelastic and that of vacationERS is elastic(unitary).

iii) the difference in elasticities can be accounted as the business travellers have certain obligations to travel which is not the case of vacationers. For the vacationers, travel is not a necessity rather it is a luxury. Thus, business travellers have inelastic demand and vacationers have elastic demand.

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