Internet Exercise - Elasticity of
Demand
Duty Area: Understanding
Economics
Task: Explain the factors
affecting supply and demand in the economy. (MKT 8120.028)
Airline tickets are a price-driven market
for most customers who prefer to fly. Many customers will trade
off nonstop flights, preferred travel times, and choice of airline,
and even inconvenience themselves to get the lowest possible price available.
Because of this, many airlines offer advance
purchase discounts in hopes of filling as many seats as possible.
Demand tends to be very elastic, which is shown during heavy reservation
activity during airline fare wars. There is a big difference between
first-class travelers and business travelers. First-class travelers
get the better seats along with a higher ticket price, while business
travelers often sit in the coach section to get a lower ticket price.
Why do you usually get a cheaper ticket
price when you have a Saturday over-night stay? If is because
the business traveler usually wants to fly out and return home in the
same workweek so they are willing to pay a premium price for the ticket
that allows them to do that. Vacation travelers usually spend
Saturday night and return home on a Sunday flight when flights are not
as crowded with business travelers.
Assignment: Plan a flight online
in order to observe the price elasticity in the airline industry.
Expedia is a comprehensive travel site developed by Microsoft and then
was spun off as a separate company. Consumers can book flights,
reserve hotel rooms, and rent cars on this online site.
URL: http://www.expedia.com
- Price a round-trip flight from New
York (JFK-Kennedy airport) to Paris (CDG-Charles de Gaulle) traveling
coach class, departing tomorrow, and returning two days later.
- Do the search for the “Flight Only”,
anytime of the day, for one adult person, all airlines, with no special
options.
- Record Expedia’s response in the following
table with the lowest price, first for a connecting flight, then for
a non-stop flight.
- Then press the back button and vary
the criteria to complete the rest of the table.
- After you finish your research and
complete the table, answer the following questions:
1. What can you conclude from the
information gathered from Expedia
about the
elasticity of demand for coach fares? For first-class fares?
2. Do you think the higher price
for a first-class ticket should be passed
on to the customer
because of higher costs to the airline? Explain your
answer.
3. How do prices differ for flights
departing tomorrow for two-day versus
one-week trips?
Why do you think this is so?
4. Does anything happen to prices
for coach flights departing “next
month”?
Explain why you think this happens.
5. For first class, do the prices
differ for trips departing tomorrow versus
next month?
Why or why not?
6. What can you see as the difference
in prices between “Connect” versus
“Non-stop”
flights? Would this matter to you? Explain why.
7. Do you think the number of the
tickets available for a certain time
period would have
any influence on the price of the ticket? Why?
| Class |
Departing |
Returning After |
Airline and Departure Flight # |
Price |
| Coach |
Tomorrow |
2 days |
Connect
Non-stop
|
|
| Coach |
Tomorrow |
1 week |
Connect
Non-stop
|
|
| Coach |
Next Month |
1 day |
Connect
Non-stop
|
|
| First |
Tomorrow |
2 days |
Connect
Non-stop
|
|
| First |
Tomorrow |
1 week |
Connect
Non-stop
|
|
| First |
Next Month |
1 day |
Connect
Non-stop
|
|
| First |
Next Month |
1 week |
Connect
Non-stop
|
|
Sharon Acuff
Virginia High School
Bristol VA
