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Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter5: Elastic And Its Application

Section: Chapter Questions

Problem 2PA

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Question

Suppose that business travelers and vacationers have the following demand for airline tickets from Karachi to Dubai:

Price

Quantity Demanded

(Business Travelers)

Quantity Demanded

(vacationers)

$150

2100 Tickets

1000 Tickets

$200

2000

800

$250

$300

1900

1800

600

400

As the price of tickets rises from $150 to $200, what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations.)

Why might vacationers have a different elasticity from business travelers?

What would you recommend based on the above information for airline to increase the revenue?

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