Demand is said to be price elastic if Select one: o a. the price of the good res

Question

Demand is said to be price elastic if Select one: o a. the price of the good responds substantially to changes in demand O b. buyers respond substantially to changes in the price of the good O c. demand shifts substantially when income or the expected future price of the good changes O d. buyers do not respond much to changes in the price of the good Suppose an airline determines that its customers traveling for business have inelastics demand and its customers traveling for vacations have an elastic demand. If the airline's objective is to increase total revenue, it should Select one: a. decreae the price charged to vacationers and increase the price charged to business travelers b. increase the price charged to vacationers and decrease the price charged to business travelers oc. decrease the price to both groups of customers d. increase the price to both groups of customers

Explanation / Answer

1. Ans: buyers respond substantially to the change in the price of the good

Explanation:

Elasticity of Demand = % change in quantity demanded / % change in price

If , EoD > 1, then demand is said to be elastic

If , EoD , 1, then demand is said to be inelastic

If , EoD = 1, then demand is said to be unitary elastic

So, if buyers respond substantially to the change in the price of the good, demand is said to be elastic.

Thus, option [b] is the correct answer

2. Ans: decrease the price charged to vacationers and increase the price charged to business travelers.

Explanation:

Since vacationers have an elastic demand, a percentage decrease in price of ticket will lead to more a percentage increase in quantity demanded. So, total revenue will increase. On the other hand, since business travelers have an inelastic demand, a percentage increase in price of ticket will lead to less than a percentage increase in quantity demanded. So, total revenue will increase.

Therefore, option [a] is correct answer.

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