The short-run price elasticity of demand for airline travel is .05, while the long-run elasticity is 2.36. This means that a significant increase in airline ticket prices will cause airline companies to:
A) collect less revenue from short-notice travelers.
B) collect more revenue from travelers who book well in advance.
C) lose money on short-notice travelers.
D) collect less revenue from travelers who book well in advance.
E) lose many of its short-notice travelers.

Question

Quizplus · Accepted Answer

The short-run price elasticity of demand for airline travel is low at .05, meaning that a significant increase in airline ticket prices will not cause a large decrease in demand. However, in the long-run, the elasticity increases to 2.36, indicating that consumers have more options and can switch to alternative modes of transportation or adjust their travel plans to avoid high prices. Therefore, airline companies will collect less revenue from travelers who book well in advance, as they are more price-sensitive and have more alternative travel options available to them.

The Short-Run Price Elasticity of Demand for Airline Travel Is