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Business Economics: Table 1 and Table 2 show the price and income elasticities of demand respectively for selected air travel markets. Table 1: Estimated Price

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Business Economics: Table 1 and Table 2 show the price and income elasticities of demand respectively for selected air travel markets. Table 1: Estimated Price Elasticities of Passenger Demand Route/Market level National level Supra-national level Short-haul Long-haul Short-haul Long-haul Intra N America -0.9 -0.8 -0.7 -0.6 Intra Europe -1.2 -1.1 -0.9 -0.8 Intra Asia -0.8 -0.8 -0.6 -0.6 Intra Sub-Saharan Africa -0.5 -0.5 -0.4 -0.4 Intra S America -1.1 -1.0 -0.8 -0.8 Trans-Atlantic -1.1 -1.0 -0.8 -0.7 Trans-Pacific -0.5 -0.5 -0.4 -0.4 Europe-Asia 0.8 -0.7 -0.6 -0.5 Source: IATA Table 2: Estimated Income Elasticities of Passenger Demand Route / Market level Short-haul Medium-haul Long-haul Very long-haul US 1.8 1.9 2.0 2.2 Developed economies 1.5 1.6 1.7 2.4 Developing economies 2.0 2.0 2.2 2.7 National level Short-haul Medium-haul Long-haul Very long-haul US 1.6 1.7 1.8 2.0 Developed economies 1.3 1.4 1.5 2.2 Developing economies 1.8 1.8 2.0 2.5 a) Define the concepts of price elasticity of demand, income elasticity of demand, and cross elasticity of demand. Use diagrams to illustrate your arguments. (15 Marks) b) Using the information presented in the above tables, explain how the concepts of price and income elasticity of demand can assist airline managers to increase revenues of their business and maximize profits. (25 Marks)

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