Final answer:
Management strategies in response to exchange rate changes are influenced by the price elasticity of demand because it indicates how sensitive consumers are to price changes.
Step-by-step explanation:
The management strategy in response to unexpected changes in exchange rates does often consider the price elasticity of demand. When exchange rates change, it can affect the cost of imported goods and the competitiveness of exported goods.
If demand for a company's products is highly elastic, consumers are sensitive to price changes, and a change in exchange rates that affects prices can lead to significant changes in quantity demanded. Therefore, management might use different strategies based on the elasticity of their products.
They may hedge against currency risks or adjust prices and supply chains accordingly.Regarding elastic supply, if supply is elastic, shifts in demand will have a larger effect on equilibrium quantity than on price. This is tied to the idea of elasticity: an elastic supply indicates that suppliers can adjust production levels easily in response to price changes.
Considering transatlantic air travel, the different elasticities for business and economy class suggest varying consumer sensitivity to price changes. The higher elasticity of demand for business class (0.62) compared to economy class (0.12) indicates that business passengers are more responsive to price changes than economy passengers, likely due to the nature of the two markets, with business travelers potentially having more alternative options or being more influenced by corporate travel policies.