Ryanair slumps to first ever annual loss – price elasticity of demand revision

Ryanair have posted an annual pre-tax loss of £155 million. Despite this, the chief executive expects to emerge stronger from the recession by cutting prices by 20%. This is a great example of a firm trying to take advantage of price elasticity of demand in their market. I have written some GCSE style questions to go along with this article for revision.

What is meant by price elasticity of demand? (2 marks)

Explain one reason why demand for air travel is likely to be price elastic. (4 marks)