Question
In an economy, long distance travel is usually provided by high-speed rail and coaches. The fares of high-speed rail are in general higher than the
In an economy, long distance travel is usually provided by high-speed rail and coaches. The fares of high-speed rail are in general higher than the coach fares. Consider a high-speed rail company that offers two classes of seats in its rides, a small number of premium seats at a higher price and a large number of economy seats at a relatively lower price. The company has increased the ticket prices recently for both seats to cover the higher operational costs. The prices and quantities sold for both seats before and after the price hike is shown in the table below.
(a) Calculate the price elasticity of demand for both seats using the mid-point method and classify the two seats based on the price elasticity of demand. (10 marks)
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