PRICE ELASTICITY OF DEMAND

(Case study)
1. The given demand curve is correct because it has a steeper slope which signifies that demand is less responsive to price. Demand would be elastic if the curve would have been flatter. It is given that the price elasticity of demand for air travel between Bombay and Delhi is 0.67 which is less than 1 so this means that the demand is inelastic i.e. it is less than perfectly elastic. 2. The doubling of the price of the air ticket between Bombay and Delhi will have an effect on the demand curve. The proportionate change in demand to the proportionate change in price will be less. This means that if the price increases by 100%, the demand will not fall by 100%, it will be less than it since it is a case of inelastic demand. 3. If there is recession the demand curve will surely be affected as during recession the business is affected the most. There is depression in the market and so the business class is affected. The demand for the air tickets will fall as there will be decrease in the number of business visits. Thus demand is not only affected by the price but also by various other factors. 4. If there is an increase in the cost of the fuel, the companies will shift the burden of the increased costs of the fuel onto the customers. In such a situation the airlines company will be a beneficiary. And the demand of the customers being inelastic, they have to bear the increased costs. Thus the increased cost will not greatly affect the demand curve.

By sanya kapur