Final answer:
Elasticity of demand for freight transportation can indeed be price elastic, but varies based on market conditions. Business class and economy class air travel show different price elasticities due to varying consumer sensitivities, and cross-price elasticity affects demand for substitutes when the price of goods changes.
Step-by-step explanation:
The statement that aggregate demand for transportation is price elastic, meaning a freight rate reduction will proportionally increase the aggregate demand for freight transportation, can be true under certain market conditions.
However, the elasticity of demand for freight transportation can vary based on several factors, including the availability of substitutes, the proportion of freight costs in the total cost of goods, and the urgency or time sensitivity of the shipments.
In the case of transatlantic air travel, the price elasticity of demand is estimated to differ between business class and economy class, with business class having a lower price elasticity than economy class due to different consumer sensitivities and alternatives available.
Furthermore, the concept of cross-price elasticity of demand indicates that a change in the price of one good can affect the quantity demanded of another good. For example, if plane tickets become cheaper, it is likely that the demand for substitute modes of transportation, such as train tickets, will decrease.