   Chapter 5, Problem 2PA

Chapter
Section
Textbook Problem

Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston: 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

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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