ps3new[1]

# ps3new[1] - PS#3Solutions Chapter5 2 a ,...

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PS#3 Solutions Chapter 5 2. a. For business travelers, the price elasticity of demand when the price of tickets rises from  \$200 to \$250 is [(2,000 – 1,900)/1,950]/[(250 – 200)/225] = 0.05/0.22 = 0.23. For  vacationers, the price elasticity of demand when the price of tickets rises from \$200 to  \$250 is [(800 – 600)/700] / [(250 – 200)/225] = 0.29/0.22 = 1.32. b. The price elasticity of demand for vacationers is higher than the elasticity for business  travelers because vacationers can choose more easily a different mode of transportation  (like driving or taking the train). Business travelers are less likely to do so because time is  more important to them and their schedules are less adaptable. 3. a. The percentage change in price is equal to (2.20 – 1.00)/2.00 = 0.2 = 20%. If the price  elasticity of demand is 0.2, quantity demanded will fall by 4% in the short run  [0.20  ×  0.20]. If the price elasticity of demand is 0.7, quantity demanded will fall by 14%

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