Question 3 [22 marks]

Suppose that business travelers and leisure travelers have the demand schedules for airline tickets from Atlanta to Philadelphia given in the table above.

Price

(dollars per ticket)

Quantity demanded business travelers

Quantity demanded leisure travelers

Page 15 of 17

(tickets per week)

(tickets per week)

0

1,800

1,600

100

1,600

1,200

200

1,400

800

300

1,200

400

400

1,000

0

500

800

0

a) Draw both demand curves. (5 marks)

b) As the price of tickets rises from $200 to $300, what is the price elasticity of business travelers' demand? What is the price elasticity of leisure travelers' demand?

(12 marks)

c) Why do business travelers and leisure travelers have different price elasticities of demand for airline tickets? (2 marks)

d) At what price is the price elasticity of demand equal to 1 for business travelers? For leisure travelers? (3 marks)