Exercise 4 The government has imposed a new tax on all airline travel. The market has two types of travelers: business and leisure. Business travelers have a price elasticity of demand of -1.2, leisure travelers have a price elasticity of demand equal to -3.0. Airlines can price discriminate between these two groups (i.e. charge different prices to each type). Which type of traveler will bear the larger burden of the tax. Explain.

Exercise 4 The government has imposed a new tax on all airline travel. The market has two types of travelers: business and leisure. Business travelers have a price elasticity of demand of -1.2, leisure travelers have a price elasticity of demand equal to -3.0. Airlines can price discriminate between these two groups (i.e. charge different prices to each type). Which type of traveler will bear the larger burden of the tax. Explain.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter3: Demand Analysis

Section: Chapter Questions

Problem 4E

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