Suppose the short-run price elasticity of demand for airline travel is 0.50, while its long- run elasticity is 2.50. This means that for 100 short-notice travelers compared to 100travelers who book well in advance, a significant increase in airline fares now will causeairlines to
A) collect less revenue from the short-notice travelers than from the travelers who book well in advance
B) gain travelers who book well in advance but lose short-notice travelers
C) lose more revenue from short-notice travelers than from travelers who book well in advance
D) collect less revenue from the travelers who book well in advance than from the short- notice travelers
E) lose more short-notice travelers than travelers who book well in advance

Question

Quizplus · Accepted Answer

In the short run, demand is inelastic (0.50), so a price increase will not significantly reduce the quantity demanded, leading to higher revenue from short-notice travelers. In the long run, demand is elastic (2.50), so a price increase will significantly reduce the quantity demanded, leading to less revenue from travelers who book well in advance.

Suppose the Short-Run Price Elasticity of Demand for Airline Travel