Final answer:
Airlines lowering fares to increase revenue implies they believe demand is price elastic, meaning a price drop will lead to a significantly greater quantity demanded and higher total revenue. The correct answer is price elastic.
Step-by-step explanation:
When airlines attempt to lower fares to increase revenue, they must believe that the demand for airline service is price elastic. This means that they expect a decrease in price will lead to a proportionally larger increase in the quantity demanded.
The rationale behind these reductions in fares is based on a key concept: price elasticity of demand. In cases where demand is price elastic, a decrease in price results in a larger percentage increase in quantity sold, thus boosting total revenue. Conversely, if demand were price inelastic, lowering prices wouldn't significantly increase the quantity sold, and therefore, wouldn't be a favorable strategy for airlines.