25. Transatlantic air travel in business class has an estimated elasticity of de

Question

25. Transatlantic air travel in business class has an estimated elasticity of demand of 0.40 less than transatlantic air travel in economy class, with an estimated price elasticity of 0.62. Why do you think this is the case?

34. The equation for a demand curve is:

P = 2/Q. What is the elasticity of demand as price falls from 5 to 4? What is the elasticity of demand as the price falls from 9 to 8?

Would you expect these answers to be the same?

25. Transatlantic air travel in business class has an estimated elasticity of demand of 0.40 less than transatlantic air travel in economy class, with an estimated price elasticity of 0.62. Why do you think this is the case?

34. The equation for a demand curve is:

P = 2/Q. What is the elasticity of demand as price falls from 5 to 4? What is the elasticity of demand as the price falls from 9 to 8?

Would you expect these answers to be the same?

Explanation / Answer

25. The elasticity of demand for business class travellers is low because the business class travellers are indifferent with a rise in price of the ticket. Also considering the time taken the business class travellers will not be ready to forego the comfort. They would prefer the luxurious travel and would not change to economy if the price increases or decreases. The demand for business class tickets is thus rigid and inelastic.

On the other hand there will be rise in economy class ticket buyers if there is a fall in price. if the price falls the people who travel by train and other land transport will prefer economy class travel which will save them time. The elasticity of demand for economy tickets more than the business class means that the demand for economy class will increase by 0.6% with a 1% decrease in its price as against an increase in demand for business class travellers by only 0.4%

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