An airline knows that business travelers have more inelastic demand for travel than vacationers. That is, business travelers are often willing to pay more for airline tickets than vacationers. The airline also knows that business travelers do not like to travel over weekends. When customers request airline tickets that do not involve travel over a weekend, the airline determines that a traveler is likely a business traveler and charges a higher price. This is an example of
A)moral hazard.
B)signaling.
C)screening.
D)adverse selection.

Question

Quizplus · Accepted Answer

This scenario is an example of screening because the airline is using information about travel preferences to determine whether a customer is a business traveler or a vacationer, and is charging a higher price to those who are likely to be business travelers.

An Airline Knows That Business Travelers Have More Inelastic Demand