Question

In: Economics

On most normal weekends, Spirit of Melbourne charges only half the normal price for a one-way...

On most normal weekends, Spirit of Melbourne charges only half the normal price for a one-way trip from Melbourne to Devonport. This usually attracts double the passengers compared to weekdays. On holiday weekends, however, the half-price fare only attracts 10 per cent more passengers. From this information we can say that, compared to holiday weekends, the demand for the trip on normal weekends is:

a) less elastic.

b) more elastic.

c) unitary elastic.

d) perfectly elastic.

e) perfectly inelastic.

Solutions

Expert Solution

Price elasticity of demand is equal to percentage change in quantity demanded divided by percentage change in price.

As here only price effect is given on the demand so here we have to find price elasticity of demand.

From the given information we can say that, compared to holiday weekends, the demand for the trip on the normal weekends is more elastic.

It is more elastic because on the same change in the price (half the normal price) more no. of passenger are attracted i.e. double the passengers. While on the same change in the price (half the normal price) only 10 percent more passagers in the weekend so demand for trip on the normal weekends is more elastic compared to holiday weekend.

In other words, more no. (quantity) of trip is demanded is when the same price change (half) in the normal weekends than the holiday weekends.

Mathematically,

Price elasticity of demand in normal weekends = 20% / 50%

= 0.4

Price elasticity of demand in holiday weekends = 10% / 50%

= 0.2

So 0.4 > 0.2

More elastic demand on normal weekends compared to holiday weekends.

Rahul Sunny answered 2 years ago
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