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In: Economics

Space Spider Airline is the only airline in Spiderland. The airline has two major groups of...

Space Spider Airline is the only airline in Spiderland. The airline has two major groups of passengers – business travelers and vacation travelers. One group of them has its price elasticity of demand at -1.8 and another group has -3.0 respectively.

a. Which group, business travelers or vacation travelers, is more likely having its price elasticity of demand at -3.0? Briefly explain your answer.

b. Which traveler group will be charged a higher fare by Space Spider Airline under price discrimination? Suggest THREE practical ways for Space Spider Airline to identify this group of passengers. Explain your answers briefly.

Solutions

Expert Solution

a) spider airlines have two groups of passengers. business traveler and vacation traveler. for business travelers won't be affected much with the price variation in fare so they are less elastic compare to vacation planners as they will be more affected when there is a decrease or increase in the fare. so they are more elastic. so the elasticity -3.0 is related to vacation planner.

b) the vacation traveler will be charged a bit higher price compared to the business traveler. the reasons are

1. the price elasticity is more for the vacation traveler so even there is a change they are highly fluctuating due to the price. whereas business planners are consistent in travel.

2. Vacation traveler, they only travel or avail the opportunity in the time of vacation, which is limited and pre-fixed so if there is a high price they would like to travel and on that, if there is a little discount will be there then they will be more incline towards that airlines.

3. The business with the vacation traveller is seasonalso seaasonal fluctuations can not be taken as business goal so the regular travellers like business travellers can give more cosistent business to the airlines so providing them a convenient pricing will be beneficial fo rthe airlines.

Rahul Sunny answered 1 year ago
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