Question

An article in the Wall Street Journal noted the following: Instead of relying on a full-coach, round-trip unrestricted fare of about $2,000 between Cleveland and Los Angeles ...Continental [Airlines] since June has offered a $716 unrestricted fare in that market .... Through October, the test resulted in about the same revenue that Continental thinks it would have collected with its higher fare. Source: Scott McCartney, "Airlines Try Cutting Business Fares, Find They Don't Lose Revenue," Wall Street Journal, November 22, 2002. What is the absolute value of the price elasticity of demand on this airline route?

Answer 1

Approximately 1.

Step-by-step explanation:

The price elasticity of demand is the amount that a quantity of the product demanded changes as price changes.

When the price elasticity of demand equals 1, a rise in price causes no change in revenue for the seller, which in this case is the airline route.