After reducing a route's average ticket price from $250 to $200, an airline's reservation system tracks an increase in passenger demand from 5,000 to 7,500. The price elasticity of the passengers is best described as
A) inelastic.
B) unitary.
C) elastic.
D) erratic.

Question

Quizplus · Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the quantity demanded increased by 50% ((7500 - 5000) / 5000), and the price decreased by 20% ((250 - 200) / 250). The price elasticity of demand is -2.5 (50% / -20%), which is greater than 1 in absolute value, indicating that the demand is elastic.

After Reducing a Route's Average Ticket Price from $250 to $200