Suppose that business travelers and vacationers have the...

Suppose that business travelers and vacationers have the following demand for airline tickets from Chicago to Miami: $$\begin{array}{ccc}\text { Price } & \begin{array}{c}\text { Quantity Demanded } \\\text {(business travelers) }\end{array} & \begin{array}{c}\text { Quantity Demanded } \\\text {(vacationers) }\end{array} \\\hline \$ 150 & 2,100 \text { tickets } & 1,000 \text { tickets } \\200 & 2,000 & 800 \\250 & 1,900 & 600 \\300 & 1,800 & 400\end{array}$$ a. As the price of tickets rises from $\$ 200$ to $\$ 250,$ what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations.) b. Why might vacationers and business travelers have different elasticities?

Suppose that business travelers and vacationers have the following demand for airline tickets from Chicago to Miami:
$$\begin{array}{ccc}\text { Price } & \begin{array}{c}\text { Quantity Demanded } \\\text {(business travelers) }\end{array} & \begin{array}{c}\text { Quantity Demanded } \\\text {(vacationers) }\end{array} \\\hline \$ 150 & 2,100 \text { tickets } & 1,000 \text { tickets } \\200 & 2,000 & 800 \\250 & 1,900 & 600 \\300 & 1,800 & 400\end{array}$$
a. As the price of tickets rises from $\$ 200$ to $\$ 250,$ what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations.)
b. Why might vacationers and business travelers have different elasticities?

Key Concepts

Price Elasticity of Demand

Price elasticity of demand measures how the quantity demanded of a good responds to a change in its price. It is a central concept in economics that quantifies consumer sensitivity to price changes. A higher elasticity indicates that quantity demanded is more responsive to price changes, while a lower elasticity shows that quantity demanded is less influenced by price alterations.

Midpoint Method

The midpoint method is a technique used to calculate price elasticity of demand by taking the average of the initial and final prices and quantities as the base for percentage changes. This method helps to provide a consistent measure of elasticity over a range of prices, reducing the bias that can occur when using either the initial or final values as the base.

Market Segmentation and Differentiation in Demand

Market segmentation refers to dividing consumers into distinct groups based on characteristics such as price sensitivity or purchasing behavior. In the context of ticket demand, differences in elasticity across consumer segments (such as business travelers versus vacationers) can occur because each group has varying needs, alternatives, and degrees of urgency. This differentiation explains why some consumers may continue purchasing despite price increases while others are more likely to reduce consumption when prices change.

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