PRICE ELASTICITY
“Have U.S. Drivers Reached Filling Point of No Return?” by Justin Lahart &
“Airlines Try Business-Fare Cuts, Find They Don’t Lose Revenue” by Scott McCartney

While price is the strongest factor affecting demand, there are several factors that heavily influence the price elasticity of demand. Inelastic products are much less resistant to affects from price increases, allowing managers the flexibility to raise prices with little to no concern for losing sales. On the contrary, elastic products are highly vulnerable to and influenced by fluctuations in price. The elasticity of a product can change over time, affecting firms and industries that utilize that product. “Have U.S. Drivers Reached Filling Point of No Return?” by Justin Lahart and “Airlines Try Business-Fare Cuts, Find They Don’t Lose Revenue” by Scott McCartney discuss the affects of changing elasticity in gasoline and airplane tickets, respectively. The articles highlight the number of substitute goods, the percentage of a consumer’s budget spent on a product, and the time period that the product is under construction as strong influences on the price elasticity of gas and airplane ticket prices.

The price of gasoline has begun to show a shift from heavily inelastic to more elastic in recent history. Our textbook, Economics for Managers, discusses the affects of the in-elasticity of gasoline prices that was present in the mid 2000s. The book points to higher incomes within a sustainable economy and a perception that the spike in gas prices was short-term to explain why consumers did not generally alter their spending habits as gas prices increased. As noted by Justin Lahart in his article, we have seen a change in gas’s elasticity in recent years as income levels have steadily declined and consumers are beginning to believe that higher gas prices are going to remain for an extended period. Though in the past consumers would not generally consider alternatives due to higher prices, they are now starting to look to possible substitutions. This new trend of a more elastic view of gas prices is especially relevant to the automobile industry, which must now look to the production of smaller, more fuel-efficient cars to continue sales.

The airline industry has also seen a shift in the elasticity of products, particularly that of business passengers. Scott McCartney’s article notes the historic in-elasticity of business passenger tickets, as income levels were high and there was less room for substitution with most popular routes full of passengers. In the past, business travelers also did not have many options to choose from when booking flights and they were often traveling last minute. However, as the economy has waned in recent years, corporations have begun to tighten their budgets, sparking a trend toward a more elastic passenger ticket for business travelers. With the explosive growth of the internet ticket availability and discount airlines, corporations now have the greater options when needing to book last minute tickets. Business travelers are also beginning to explore the availability of other substitutions, such as traveling by car and teleconferencing. In light of this changing elasticity, airlines are looking for ways to adjust their pricing guidelines to recapture the business traveler market. In his article, McCartney points to attempts by major airlines to implement “new unrestricted prices” that are not yet able to match the pricing of other alternate discount fares, but are beginning to close the gap. In order to remain profitable in the market place, airlines will have to continue to adapt to the changing elasticity in their market place.

As technology shapes growth and civilization continues to evolve, so too must industries and firms in each market place learn to adapt in order to survive. Every corporation strives to produce a product with such in-elasticity that they might be able to set any price and continually increase their profits; however, for a majority of the market place, the elasticity of products will continue to change, affecting firms and industries. “Have U.S. Drivers Reached Filling Point of No Return?” by Justin Lahart and “Airlines Try Business-Fare Cuts, Find They Don’t Lose Revenue” by Scott McCartney provide examples of products that were once fairly inelastic, but are evolving in the changing market place. The articles highlight the influential power that the number of substitute goods for a product, the percentage of a consumer’s income spent on a product, and the time period that a product is under construction have on the price elasticity of demand. It is an ever-changing world, and the corporations and industries that adapt to the changes the swiftest will be the most likely to maintain and continue to survive.