Question

How do I compute elasticity for the corporation Southwest Airlines?

Answer 1

Elasticity is the measure of the responsiveness of demand with changes in price. We can calculate elasticity using the following formula. Elasticity = % change in quantity demanded/ % change in price.

We can calculate the elasticity of for the corporation Southwest Airlines if we know the quantity demanded at two different price points. We need to calculate the % change in price and demand between these two different points. After finding out the % changes, we can use the following formula:

Elasticity = % change in quantity demanded/ % change in price.

For example, if the price increases by 10% and demand fall by 5%, it means the Elasticity = % change in quantity demanded/ % change in price = 5%/10% = 1/2 = 0.50 (ignoring the negative sign).