Price Elasticity of Demand for Air Travel

The price elasticity of demand (PED) is a measure of the responsiveness of the quantity demanded of a good or service to a change in its price. If the PED is greater than one, the demand is said to be elastic, and a change in price will result in a larger percentage change in the quantity demanded. If the PED is less than one, the demand is said to be inelastic, and a change in price will result in a smaller percentage change in the quantity demanded.

In the case of air travel, if increasing air fares increases revenues and decreasing them decreases revenues, this suggests that the demand for air travel is inelastic. This means that consumers are willing to pay a higher price for air travel, and a decrease in price will not significantly increase the quantity demanded.

Factors affecting Price Elasticity of Demand for Air Travel

There are several factors that affect the price elasticity of demand for air travel, including:

1. Availability of substitutes: If there are close substitutes for air travel, such as trains or buses, the demand for air travel will be more elastic as consumers can easily switch to these alternatives if the price of air travel increases.

2. Income level: The income level of consumers can also affect the price elasticity of demand for air travel. If consumers have a high income level, they may be less sensitive to price changes and may continue to demand air travel even if the price increases.

3. Time frame: The time frame can also affect the price elasticity of demand for air travel. In the short run, consumers may be less able to switch to alternative modes of transportation and may be more willing to pay a higher price for air travel. In the long run, however, consumers may be able to adjust their behavior and switch to alternative modes of transportation, making the demand for air travel more elastic.

Conclusion

In conclusion, the demand for air travel has a price elasticity of inelastic, as increasing air fares increases revenues and decreasing them decreases revenues. Several factors can affect the price elasticity of demand for air travel, including the availability of substitutes, income level, and time frame.

Inelastic as it is related to concept of total expenditure