Imagine you work as an economist for a particular airline (A). Your job entails estimating the passenger demand for airline travel provided by A. Accordingly, you estimate the following: Price elasticity of demand for A’s service = 3 Cross elasticity of demand for A’s service (with respect to airline B’s price) = 2 Income elasticity of demand for A’s service = 1 Making sure to show all of your work, if consumer income falls by 5% (due to a recession), and at the same time airline B lowers its price by 10%, all else equal, what would you specifically recommend A due to its price to maintain its quantity of passengers (i.e., lower or raise its price and by what percent)? Hint: Elasticities are ratios of percentage changes.
Imagine you work as an economist for a particular airline (A). Your job entails estimating the passenger
Cross elasticity of demand for A’s service (with respect to airline B’s price) = 2
Income elasticity of demand for A’s service = 1
Making sure to show all of your work, if consumer income falls by 5% (due to a recession), and at the same time airline B lowers its price by 10%, all else equal, what would you specifically recommend A due to its price to maintain its quantity of passengers (i.e., lower or raise its price and by what percent)? Hint: Elasticities are ratios of percentage changes.
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