Question: The government of Byngia has introduced a new tax on
The government of Byngia has introduced a new tax on airline travel. Byngia has two types of travelers, business travelers and leisure travelers. Business travelers in Byngia have an elasticity of demand of –1.2, while Byngian leisure travelers have an elasticity of –3.0. Airlines can price discriminate among these groups; that is, they can charge different prices to the different types of fliers in the market. Which type of travel will bear the larger burden of the tax? Explain.
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