If increasing air fares increases revenues and decreasing them decreases revenues, then the demand for air travel has a price elasticity of:
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The demand for air travel has a price elasticity of Zero(Inelastic).
Explanation:
- When there is no change in the demand for a commodity or there is a very subtle change in the demand of a commodity with a change in its price, then it is called inelastic demand.
- In the given situation, there is inelastic demand for air tickets as the increase in the price of fares leads to a rise in revenue, and a fall in price causes a fall in revenue.
- This shows that the total expenditure increases due to a fall or rise in the price of fares but the demand remain the same. Therefore, the total expenditure increases with the increase in price and vice versa.
Learn more: price elasticity of demand
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