please, type the answers don\'t write it in your hand, I can\'t understand Probl

Question

please, type the answers don't write it in your hand, I can't understand

Problem 6 Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston: Price Quantity Demanded (Business Travelers) 2,000 1,900 Quantity Demanded (Vacationers) 800 600 $200 $250 As the price of tickets rises from $200 to $250, what is the price of elasticity of demand for (i) business travelers and (ii) vacationers, respectively? (Use the midpoint method in your calculations.) a. b. Why might vacationers have a different elasticity than business travelers? Explain

Explanation / Answer

6.a) The formula of elasticity by midpoint method is =[(Q2-Q1)/{(Q2+Q1)/2}]/[(P2-P1)/{(P2+P1)/2]

Here for business travelers Q2-Q1=1900-2000=-100

(Q2+Q1)/2=(1900+2000)/2=1950

and, P2-P1=250-200=50

(P2+P1)/2=(250+200)/2=225

So elasticity =- {(100/1950)}/{(50/225)}=-0.23

For vacationers Q2-Q1=600-800=-200

(Q2+Q1)/2=(600+800)/2=700

elasticity=-{(200/700)}/{(50/225)}=-1.29

i) The elasticity of business traveler is -0.23

ii) The elasticity of vacationer is -1.29

b) Here we observe the absolute value of elasticity for vacationer is more than that of the business traveler. The elasticity is different as the demand for these two type of people is different. the business traveler does not have much choice to skip traveling if the price of the ticket rises so demand is inelastic for them. But for vacationers, they have a wide choice, if the price of the ticket rises they can go later. So their demand is elastic.

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