Consider airfares on flights between New York and Minneapolis.When the airfare is $250,the quantity demanded of tickets is 2,000 per week.When the airfare is $280,the quantity demanded of tickets is 1,700 per week.Using the midpoint method,
A) the price elasticity of demand is about 1.43,and an increase in the airfare will cause airlines' total revenue to decrease.
B) the price elasticity of demand is about 1.43,and an increase in the airfare will cause airlines' total revenue to increase.
C) the price elasticity of demand is about 0.70,and an increase in the airfare will cause airlines' total revenue to decrease.
D) the price elasticity of demand is about 0.70,and an increase in the airfare will cause airlines' total revenue to increase.

Question

Quizplus · Accepted Answer

Using the midpoint method, the price elasticity of demand can be calculated as:
[(1700-2000)/((1700+2000)/2)] / [(280-250)/((280+250)/2)] = -0.86
Since the elasticity is greater than 1 in absolute value, it is considered elastic. Therefore, an increase in the airfare will cause a decrease in total revenue for airlines. This is because the increase in price will lead to a more than proportional decrease in quantity demanded, leading to a net decrease in revenue.

Consider Airfares on Flights Between New York and Minneapolis