sos economics exercise.

QUESTION 4 (50 points) A financial newspaper reported the findings of a study by the Ministry of Transportation that examined the effect on average airfares when new, low cost airlines entered one of three city pair markets: Athens-Lamaca, Athens-Heraklion (Crete) and Athens-Thessaloniki. Use the following excerpts from the newspaper article to calculate the elasticity of demand for each of the three city pairs. How do the three computed elasticities compare? Based on the computed elasticities, describe travellers' responsiveness to the reductions in airfares. a. "In Athens-Larnaca, for example... just 12,790 flew between those cities in the last three months of 2015 at an average fare of E233. Then low cost X Airlines entered the market. In the last three months of 2019, 115,040 people flew between the two cites at an average fare of (66." b. "On the Athens-Heraklion connection... (during) the last quarter of 2016 some 35,690 people made the trip at an average fare of 6165. Two years later, after the arrival of low cost Y Airlines, fares dropped to an average of (107 and traffic nearly double to 68, 100." c. "On the Athens-Thessaloniki route, where the average fare fell from (196 to $57,.., the number of passengers carried jumped from 11,960 to 94,116."