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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 by Business Travelers Quantity Demanded by Vacationers (Dollars) (Tickets) (Tickets)

150 2,100 Tickets 1,000 Tickets
200 2,000 800
250 1,900 600
300 1,800 400

As the price of tickets rises from $150 to $200, the price elasticity of demand for business travelers is _________, and the price elasticity of demand for vacationers is__________ , using the midpoint method. Therefore, the demand for airline tickets in this price range is elastic for vacationers because business travelers are sensitive to changes in price.

Answer :

sebastiansierraocm

Answer

Price elasticiy of demand for business travelers: -0.16

Price elasticity of demand for vacationers: -0.29

Explanation:

To find the price elasticy of demand (PED) using the midpoint method, we use the following formula:

[tex]PED = \frac{(Q2-Q1)/[(Q2+Q1)/2]}{(P2-P1)/[(P2+P1/2]}[/tex]

Where Q2 and P2 are the new quantity demanded and new price respectively, and Q1 and P1 are the old quantity demanded and price.

Plugging the amounts into the formula we obtain the results of the answer.

Because both results are in absolute value less than one (0.16 and 0.29), we can say that the PED of tickets, for both vacationers and Business traveleres, is relatively inelastic. (Demand falls less in proportion to the change in price).

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