Final answer:
Airlines raise ticket prices close to departure dates because consumers' demand becomes less price elastic due to the urgency of travel needs, making them more willing to accept higher prices. Factors influencing this include limited time, pre-planned travel during peak seasons, input costs, and strategic pricing by airlines.
Step-by-step explanation:
Airlines increase ticket prices as the date of departure comes closer because consumers become less price elastic as departure time approaches. The concept of price elasticity refers to how sensitive consumers are to price changes in terms of their purchasing decisions. When the departure date is looming, consumers' options for travel become limited, often making them more willing to pay higher prices due to the urgency of their travel needs.
An increase in the price of airline tickets can signal to consumers that there is a shortage (high demand or limited supply), encouraging them to economize on their purchase. This might lead them to consider traveling at different times when prices could be lower, suggesting that price elasticity plays a role in their decision-making process. Factors like pre-planned travel during holidays, hikes in costs such as jet fuel, or strategic pricing by airlines can all influence the elasticity of demand for air travel.
Other factors affecting elasticity include the level of the item's price, income level of the consumer, and the availability of substitutes. High-income consumers might be less sensitive to price increases, and if there are no close substitutes for the product or service in question, the demand tends to be less elastic.