d. root beer or water 2. Suppose that business travelers and vacationers have th
ID: 2541815 • Letter: D
Question
d. root beer or water 2. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston: Quantity Demanded Quantity Demanded (vacationers) Price (business travelers) 2,100 tickets 2,000 1,900 1,800 $150 1,000 tickets 6. 200 250 300 800 600 400 a. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (i) vacationers? (Use the midpoint method in your calculations.) b. Why might vacationers have a different elasticity from business travelers? 3. Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run. a. If the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of heating oil demanded in the short run? In the long run? (Use the midpoint method in your calculations.)Explanation / Answer
Req a: Original price: $ 200 New price: $ 250 Change in price: 250 -200 = $50 Average pricec: 200+250 /2= 125 % change inprice: Change in price / Average price =50/125 *100 = 40% Demand of business Travellers: Original demand: 2000 New demand =1900 Change in demand : 2000 -1900 = -100 Average demand (2000+1900)2 = 1950 % change in demnad: Change in demand/ Average demand = -100 /1950 *100 = -5.13% Price elasticity of Business Travellers: % change in demand / % chnagee in price = - 5.13% /40% = -0.13 Demand of Vacationers: Original demand: 800 New demand: 600 Average demand: 700 Change in demand: 600-800 = -200 % change in demand = change in demand/ Average demand = -200 /700 = - 28.57% Price elasticity of vacationers: % change in demand/ % change in price = -28.57 % /40% = -0.714 Req B: Vacationers demand is more elastic than demand of business travellers because of the fact that the demand by busines stravellers is more of neccessity as they cannot postpone their busienss trips apart from vacationers who can postpone their trip.
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