Question

If the demand for air travel were to change so that business travelers and vacationers have thesame price elasticity of demand for air travel,
A) airlines would charge the same price to each type of flyer.
B) airlines would still charge business flyers a higher fare since the traveler's employer pays anyway.
C) airlines would be driven out of business.
D) airlines would counter by charging vacationers a higher fare.

Answer 1

Answer:

Answer is option A, i.e. airlines would charge the same price  to each type of flyer.

Explanation:

The elasticity of demand for air tickets by vacationers is generally found higher than that of business travelers. the reason behind this is that there is an ample amount of options as well as time in the hands of vacationers and which is not the case with the business travelers. Business travelers do not opt for other modes of transport other than the airway as this saves their time. Therefore, when one requires to create the same elasticity of demand for both types of flyers, then the prices for all of them should be kept the same.