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(a) Consider the market for air travel. It is discovered that the
(a) Consider the market for air travel. It is discovered that the demand for business class ticket is relatively more inelastic compared to the demand for economy class ticket.
(i) Assume that initially the equilibrium price and quantity of tickets for both classes are the same. Use a market diagram for air travel which illustrates both the business class and the economy class.
(ii) An improvement in the technology of air travel has occurred which affects both classes equally. Draw a suitable diagram to illustrate and discuss the effect on the equilibrium price and quantity of business class and economy class tickets. From the diagram, explain which class has a larger change in price and which class has a larger change in quantity after the technological improvement.
This question was answered on: Feb 21, 2020
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