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    Question

    The market for air travel is characterized by a few

    major airlines that often engage in price wars and promotional offers to attract customers. However, during peak travel seasons or for specific routes with limited competition, airlines tend to raise prices significantly. Which of the following best explains the pricing behavior of airlines in this scenario?
    A The demand for air travel is perfectly inelastic. Correct Answer Incorrect Answer
    B Airlines operate in a perfectly competitive market. Correct Answer Incorrect Answer
    C The supply of air travel is perfectly elastic. Correct Answer Incorrect Answer
    D Airlines engage in price discrimination based on demand elasticity. Correct Answer Incorrect Answer
    E The market for air travel is a monopoly. Correct Answer Incorrect Answer

    Solution

    Airlines practice price discrimination by charging different prices to different customer segments based on their willingness to pay. During peak seasons or on less competitive routes, the demand for air travel is relatively inelastic, allowing airlines to charge higher prices. Conversely, during off-peak seasons or on highly competitive routes, the demand is more elastic, leading to price wars and discounts.

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