ELASICITY What is meant by the terms price elasticity, cross-price elasticity and income elasticity? Explain why...

ELASICITY

What is meant by the terms price elasticity, cross-price elasticity and income elasticity? Explain why demand elasticity is the basis of airline pricing and revenue maximization, and why elasticity changes at different price points.

Expert Solution

Price Elasticity of Demand is the responsiveness of quantity demand refers to the response the quantity demanded shows to the change in price

Income Elasticity of Demand measures responsiveness of quantity demanded to a change in income.

Cross Elasticity of Demand measures the responsiveness in the quantity demanded of one good to a change in price of another good.

In airr line industry price elasticity of demand varies with the price. The sellers use these diffferent price elasticity of demands to make profits supposa person has inelastic price demand that means he is willing to pay extra money or is fine with rise in price . but if someone's demand to be in business class is elastic then when the company will increase the prices of business class then he will shift to economy class . Companies analyse general trend of elasticity at different prices then they set the prices. for example during the festive season the demand for ticket is high so the companies increase the ticket prices because they know everyone wants to go home or somewhere else during festive season or during winter breaks and people will be ready to payy extra money i.e. there inelasticity is high . on the other hand during the off season prices are low because people can mange without travelling during that period i.e. there elasticity is high so the prices are les

Rahul Sunny answered 2 years ago

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