Question 2

Figure 2 : Price elasticity of demand (PED) for air travel

Market segment PED value
Long-distance international business flights -0.3
Long-distance international leisure flights -1.0
Short-distance business flights -0.7
Short-distance leisure flights -1.5

Using Fig. 2, explain a likely reason for the different price elasticity values for
(i) business flights compared with leisure flights [3]

Business flights are more price inelastic than leisure flights (1). There are no choice/substitutes exist in
time or destinations for business travel hence its demand is less responsive to changes in price (2).
OR Price rises in business travel are borne by the travellers firm rather than the traveler hence its
demand is less responsive to changes in price. (2)

(ii) long-distance flights compared with short-distance flights. [3]
Long-distance flights are less price elastic than same purpose short-distance (1), fewer substitutes exist
for long-distance than short-distance flights (2), long-distance involves longer time periods of travel and
higher costs making price rises less significant in total cost of travel. (2)