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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 2,100 tickets 1,000 tickets 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?

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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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Section
BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 5, Problem 2PA
Textbook Problem
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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 2,100 tickets 1,000 tickets
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?

Subpart (a):

To determine
The calculating price elasticity of demand.

Explanation of Solution

  1. (i) By midpoint method; the price elasticity of demand for business travelers takes place when the price of tickets rises from $200 to $250 is calculated as follows:

Price elasticity of demandBusiness travellers=(20001900)((2000+1900)2)÷(250200)((250+200)2)=1001950÷50225=1001950×22550=0.23

The price elasticity of demand for business travelers is 0

Subpart (b):

To determine
Relevance of price elasticity of demand.

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