Suppose Atlantic air travel in business class has an estimated elasticity of demand of 0.40 while Atlantic air travel in economy class, with an estimated price elasticity of 1.62. And the price elasticity of supply is 1.5 at market equilibrium. As a result of an increase on fuel tax on the seller, the new equilibrium price rises by 20%. (a) What is the percentage change in quantity demanded of air travel in both classes? Show your calculations. (b)Explain with 2 relevant diagrams, what will happen to total revenue in the air travel industry? (Hint: Consider the slope of demand and supply curves)
Suppose Atlantic air travel in business class has an estimated elasticity of demand of 0.40 while Atlantic air travel in economy class, with an estimated price elasticity of 1.62. And the price elasticity of supply is 1.5 at market equilibrium. As a result of an increase on fuel tax on the seller, the new equilibrium price rises by 20%. (a) What is the percentage change in quantity demanded of air travel in both classes? Show your calculations. (b)Explain with 2 relevant diagrams, what will happen to total revenue in the air travel industry? (Hint: Consider the slope of demand and supply curves)
Chapter5: Elasticity Of Demand And Supply
Section: Chapter Questions
Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...
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Suppose Atlantic air travel in business class has an estimated
0.40 while Atlantic air travel in economy class, with an estimated
(a) What is the percentage change in quantity demanded of air travel in both classes? Show your calculations.
(b)Explain with 2 relevant diagrams, what will happen to total revenue in the air travel industry? (Hint: Consider the slope of demand and supply
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