Question

During spring break, students have an elasticity of demand for a trip to Florida of -3, while senior citizens have an elasticity of demand for a trip to Florida of -6. What pricing insight does this give to the airline companies?

Group of answer choices

Charge a lower price to the senior citizens because they have a relatively more elastic demand.

Charge a lower price to the students because they have a relatively more inelastic demand.

Charge a higher price to the senior citizens because they have a relatively more inelastic demand.

Charge a higher price to the students because they have a relatively more elastic demand.

Answer 1

Elasticity of demand is the percentage change in demand to the percentage change in price. To put simple it is how customers respond to price change. If the change demand is greater than change in price demand is relatively elatic and if the change in demand is less as compared to price then it is relatively inelastic demand. If price change brings equal change in demand it is unitary elastic demand. if no change is there in demand to price it is inelastic demand.

In above example the demand of students is less elastic then senior citizens. so if we consider all four option then 1- If company will charge a lower price from senior citizens then as elasticity of demand of senior citizens  is high  so it will increase the demand.

2- Charge a lower price to the students because they have a relatively more inelastic demand:

as Charging a lower price from students will not effect the demand much as the demand elasticity is less.

3- Charge a higher price to the senior citizens because they have a relatively more inelastic demand.:

charging a higher price from senior citizens will decrease demand as the demand is relatively more elastic. The demand of senior citizens is nore elastic

4- Charge a higher price to the students because they have a relatively more elastic demand.:

The demand of students is relatively less elastic and charging them a higher price will not affect the demand much.

so the correct answer is that the company may charge a lower price from sernior citizens to increase demand