Question

By considering the determinants of the price elasticity of demand, explain whether the demand for air travel is price elastic or price inelastic. You may consider both the business travelers and the leisure travelers when analysing their price elasticities of demand.

Answer 1

For Business travellers, the demand for air travel would be relatively inelastic in nature and this is because of the fact that air travel is a necessity for them because they have to keep moving from one place to another and no matter what the prices they should opt for it as it is a necessity to the which is why it is inelastic in nature. When you consider the case of leisure travelers, it can be mentioned that demand is elastic in nature because it is price sensitive to them where most of the budget leisure travellers decide to travel when the prices are low as a result of which when the price reduces the quantity demanded increases more proportionately which is why it is elastic in nature