Any help is much appreciate... I am really stuck on these two questions.?

Question

I have read all my material and answered 8 other questions but these two I cant come up with the answer, please help...

In the airline industry, is price elasticity of demand considered elastic or inelastic? Are there any substitutes available? Is the good a luxury or a necessity? Can anyone give me some hints?

What is the price elasticity of supply for the airline industry?

Answer 1

price elasticity of demand measured how much quantity demanded changes when price changes.

The airline industry, you need to bear in mind, engages in price discrimination. Business travellers go business class, rich travellers go first class, and the rest of us cattle go economy.

To people in first class, price doesn't matter much, so demand is inelastic. They wnat to travel they will.

To people in business class, since most of the time the company is picking the tab, the demand is quite inelastic. The company will still pay for travel costs up to a certain point (esp since if executives are travelling).

To cattle like me, if the price goes up, I will change my plans. I travel for holidays, taxes and fuel surcharges have cahanged my holiday plans, either I travel shorter distrances, or I take train/bus.

So the economy cattle, train/bus might be substitutes, but for business and first class, there aren't many substitutes.

Furthermore, to economy cattle, air travel (esp for holidays) is a luxury, for business a necessity, for first class, it's a bit harder. Can range from necessity, to article of ostentation (show off).

Hope this helped (made you think at least)

Answer 2

From wiped: The price elasticity of demand (PED) is an elasticity that measures the nature and degree of the relationship between changes in quantity demanded of a good and changes in its price.
When the price of a good falls, the quantity consumers demand of the good typically rises; if it costs less, consumers buy more. Price elasticity of demand measures the responsiveness of a change in quantity demanded for a good or service to a change in price.

my answer: in the airline industry the PED is elastic. Substitutes for airline is either via land or via sea. In today's world taking the plane is a necessity but getting first class seats is a luxury.

dont know about the PES, if its a figure you can ask the airline or airport for that.

hope it helps.

Answer 3

Go back to what the words mean.

What do you think would happen to demand if airlines all doubled their prices? if you think that demand would remain the same, then it is inelastic.

Regarding substitutes, if you discovered that you couldn't go by air, are there any other ways that you could travel?

Luxury or necessity; this means whether you can do without it. In the case of travel, this depends on the reason for your trip.

Regarding elasticity of supply, if demand that suddenly increased, would be airlines be able to lay on extra transport? If so, the supply is elastic.

Answer 4

I can see why you're stuck on these, since they are pretty tough questions. In fact, I'd say that few people, if anyone, really knows the answers to these questions with certainty. I suspect that your instructor is hoping for students to demonstrate knowledge of the relevant definitions and make an attempt to apply them here more than he or she is looking for "correct" answers.

One thing that you might consider is that the elasticity of demand for a good is very sensitive to how you define the good. For example, if we define air travel in such a way that travel on a discount carrier is the same good as travel on a more traditional carrier, then demand for air travel is less elastic than if we define air travel as only air travel on traditional carriers, since discount carriers provide a very close substitute for many people.

Another point to consider, when you discuss elasticity of supply, is that the "production technology" for air travel implies what are sometimes called avoidable costs. This basically means that the cost of flying an empty plane is about the same as flying a full plane. As a result, the supply of air travel is characterized by discontinuities.

I hope that this helps some at least. Also, you've really attracted a large crowd. Wonder if that's due to the pic in your av? Nice!

Answer 5

Question 2: There is no price elasticity of supply for the Airline industry, because it will never matter how much a ticket costs people will still buy in, the same way they purchase gas when the price goes up.

Answer 6

I would say it is elastic. Substitutes would include trains, automobiles, conference calls.
I don't understand what you mean by the 3rd question.

Answer 7

Bread is inelastic because people keep on buying it regardless what price it is. And cars are elastic

there is your hint

Answer 8

I think this link may provide you with more information you need to answer your questions.

http://en.wikipedia.org/wiki/Price_elasticity_of_demand

Answer 9

Silly girl. Since 9-11, rubber bands cannot be taken on jets!
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