Suppose that business travelers and vacationers have the...

Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston: $$ \begin{array}{ccc} \text { Price } & \begin{array}{c} \text { Quantity Demanded } \\ \text { (business travelers) } \end{array} & \begin{array}{c} \text { Quantity Demanded } \\ \text { (vacationers) } \end{array} \\ \hline \$ 150 & 2,100 \text { tickets } & 1,000 \text { tickets } \\ 200 & 2,000 & 800 \\ 250 & 1,900 & 600 \\ 300 & 1,800 & 400 \end{array} $$ 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 have a different elasticity from business travelers?

Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:
$$
\begin{array}{ccc}
\text { Price } & \begin{array}{c}
\text { Quantity Demanded } \\
\text { (business travelers) }
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \\
\text { (vacationers) }
\end{array} \\
\hline \$ 150 & 2,100 \text { tickets } & 1,000 \text { tickets } \\
200 & 2,000 & 800 \\
250 & 1,900 & 600 \\
300 & 1,800 & 400
\end{array}
$$
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 have a different elasticity from business travelers?

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Transcript

00:01 So here we have this elasticity question, right? and we're thinking about the elasticity of demand, which is based on the change in the quantity demanded relative to the change in price.

00:13 So we need information about quantity and price, and we are told that the price is going from 200 to 250.

00:21 We look at the table and we see as what's happening for business travelers is going from 2000 to 1900.

00:35 And we're gonna need the midpoints, right? as instructed, so this is 1950, this is 225.

00:42 So my elasticity of demand for business is going to be based on, right? new minus old divided by the midpoint.

00:52 So this is gonna be new quantity minus old quantity divided by midpoint quantity.

01:00 New price minus old price over midpoint price is equal to minus 100 times 225 divided by 50 times 1950.

01:14 There is absolutely no way i could possibly do that in my head, so you put it in the calculator.

01:20 And when you put it in the calculator, what i'm getting is a negative 0 .23.

01:31 And this is what we would call inelastic.

01:35 Now, this is of course for business.

01:41 And if i do it for, let's say for consumers, i get again using the same formula.

01:51 Now, the quantity is going differently.

01:54 The quantity is going from 800 to 600 and the midpoint quantity is therefore 700...

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