Final answer:
a. The price elasticity of demand for business air travel is -0.75, indicating that a change in price has a smaller impact on demand. b. The price elasticity of demand for nonbusiness air travel is -1.50, indicating that a change in price has a larger impact on demand. c. Airlines can use third-degree price discrimination to charge higher prices for business air travel and offer discounted prices for nonbusiness air travel.
Step-by-step explanation:
a. The price elasticity of demand for business air travel is -0.75. This means that a 1% increase in the price of business air travel would result in a 0.75% decrease in the quantity demanded. In other words, the demand for business air travel is relatively inelastic, meaning that a change in price has a smaller impact on demand.
b. The price elasticity of demand for nonbusiness air travel is -1.50. This means that a 1% increase in the price of nonbusiness air travel would result in a 1.50% decrease in the quantity demanded. In other words, the demand for nonbusiness air travel is relatively elastic, meaning that a change in price has a larger impact on demand.
c. Airlines could use third-degree price discrimination in this case by charging higher prices for business air travel and offering discounted prices for nonbusiness air travel. This allows the airlines to capture more revenue from business travelers who are willing to pay higher prices, while still attracting price-sensitive nonbusiness travelers with lower prices.