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.)

For business travellers = 0.23 and for vacationers = 1.29

Explanation:

I the price of the ticket rises from $200 to $250 the price elasticity for business travellers and for vacationers is as follows:

Price elasticity for business travellers  

= (Q2-Q1)/[(Q2+Q1)/2]/(P2-P1)/[(P2+P1)/2]

= [(1900-2000)/1950]/[(250-200)/225]

= -0.23

Therefore, elasticity = |-0.23| = 0.23

ii) Price elasticity for vacationers = (Q2-Q1)/[(Q2+Q1)/2]/(P2-P1)/[(P2+P1)/2]

= [(600-800)/700]/[(250-200)/225]

= -1.29

Therefore, elasticity = |-1.29| = 1.29

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