Suppose all the demand shifters are in their initial values (average household income is $50,000 per year, airfare from JFK to LHR is $500 round-trip, and the average room rate in Paris is $150 per night). If Air France were currently charging $1,000 roundtrip, its price elasticity of demand would be approximately ____.
2007-03-05 13:51:55 · 2 answers · asked by Erica H 1 in Social Science ➔ Economics
Less than 1. If Air France is able to charge $1,000 roundtrip when the average is $500, they must have some sort of competitive advantage that sets them apart. Perhaps it is higher reliability, better service in flight, fewer layovers, what have you. This indicates that demand is relatively inelastic, and thus the price elasticity of demand must be between 1 and 0. It is probably closer to zero than 1, since 1 is where it becomes unitary elastic.
2007-03-06 01:29:35 · answer #1 · answered by theeconomicsguy 5 · 0⤊ 0⤋
I don't understand all that gobbledygook, but why would anyone pay the frogs $1000.00 for a flight the costs $500.00 elsewhere? Only an econ grad I guess.
2007-03-05 14:05:29 · answer #2 · answered by Anonymous · 0⤊ 0⤋