2. Elasticity of supply and demand

a. Compute the elasticity of demand at Q = 4 (thousand). Show the computation.

Answer:

b. Compute the elasticity of supply at Q = 12 (thousand).Show the computation.

Answer:

c. Assume income elasticity of demand is 1.5. By what percent would demand change if real incomes in New York and Los Angeles rise by 3% in an economic expansion?

Answer:

Average Fare in $ 1000 800 600 400 200 JFK-LAX Airline Traffic 4 6 8 10 12 14 Daily Passengers (in thousands) Demand Supply 16 18