Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:
Price        Quantity Demanded           Quantity Demanded      Â
                (business travelers)            (vacation travelers)
$150              2,100 tickets                      1,000
$200Â Â Â Â Â Â Â Â Â Â Â Â Â Â 2,000Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 800
$250Â Â Â Â Â Â Â Â Â Â Â Â 1,900Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 600
$300Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,800Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 400
Required:
a. As the price of tickets rises from $200-$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 the vacation travelers have a different elasticity from business travelers?
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