What effect, if any, does each of the following events have on the price elastic

Question

What effect, if any, does each of the following events have on the price elasticity of demand for corporate-owned jets?

A decline in corporate earnings causes firms to cut their travel budgets, which in turn causes expenditures on corporate jet travel to become a larger fraction of total spending on corporate travel.

Further deregulation of the commercial airlines industry substantially increases the variety of departure times and destinations offered by commercial airlines.

The cost of manufacturing corporate jets rises.

A new, much more fuel-efficient corporate jet is introduced.

Explanation / Answer

1) A decline in corporate earnings causes firms to cut their travel budgets, which in turn causes expenditures on corporate jet travel to become a larger fraction of total spending on corporate travel:

This event will increase the price elasticity of demand for corporate owned jets. When price elasticity of demand increases it implies now with same change in price of good as earlier, now responsiveness of demand is more than earlier. In other words now with increase in price jets price the demand for corporate jets will reduce more than earlier because of increased share of travel in total spending.

2) Further deregulation of the commercial airlines industry substantially increases the variety of departure times and destinations offered by commercial airlines.:

Commercial airlines industry serve as substitute for corportae jets. When deregulation takes place then the option of travelling through commercial airlines with wide variety of departure times and designations also widen as compared to woing corporate jest by corporates. Hence again the price elasticity will rise.

3) The cost of manufacturing corporate jets rises.:

It is determinant of supply and hence will influence the elasticity of supply not elasticity of demand.

4) A new, much more fuel-efficient corporate jet is introduced:

It is also a determinant of supply and hence will influence the elasticity of supply not elasticity of demand.

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