If a passenger leaves for business travels by air, he or she will be reimbursed by...

If a passenger leaves for business travels by air, he or she will be reimbursed by the company, but the traveler will bear the travel expenses himself. Explain what this means about the price elasticity of demand for air travel.

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Expert Solution

If a passenger leaves for business travels by air, he or she will be reimbursed by the company, so the price elasticity of demand for such a passenger will be inelastic. Since the rise in price will have little or no impact on quantity demanded for air travel as it is going to be reimbursed by the company. Also the demand for air travel is a necessity good for business travels.

Travellers will bear the travel expenses himself so the price elasticity of demand is elastic. A rise in price will lead to greater fall in quantity demanded since the travellers pay himself, it will be relative elastic demand.

Rahul Sunny answered 2 years ago

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