Final answer:
The demand for airline tickets is elastic for vacationers because their quantity demanded changes by more than the price change. Business travelers have a unitary elasticity, showing less sensitivity to price changes compared to vacationers. Price elasticity informs pricing decisions based on how demand changes with price.
Step-by-step explanation:
The demand for airline tickets in this price range is elastic for vacationers because they are more sensitive to price changes. When the price elasticity of demand for a group of consumers is greater than 1, it means that the percentage change in quantity demanded is greater than the percentage change in price. Thus, when vacationers face a price increase from $250 to $300 and exhibit a price elasticity greater than 1, they are likely to reduce their quantity demanded by a greater percentage than the price increase, indicating elastic demand.
Business travelers, on the other hand, have a unitary elasticity of demand, which means that the percentage change in quantity demanded is equal to the percentage change in price. This illustrates that businesses travelers' demand for tickets is less sensitive to price changes when compared to vacationers.
Understanding price elasticity is crucial for businesses and consumers alike, as it helps predict changes in demand in response to price fluctuations, and therefore can inform pricing and purchasing decisions.