Question: If we have a hypothetical demand function for air travel between two cities that looks as follows: D = 17.5 - .3P + 2.3 Ps

  1. If we have a hypothetical demand function for air travel between two cities that looks as follows:

D = 17.5 - .3P + 2.3 Ps + 2.7 Y where D is the demand for seats

P is the price of the seats on the airline

Ps is the price of seats on a competing airline

Y is the per capita income in the region

Explain why we expect results in the form of this hypothetical demand function. Explain the concepts of Demand in Price Elasticity, Income Elasticity and Cross Elasticity.

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