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Friend Needs Econ Help....WORTH 10 Points!!!?
Suppose the rising price of jet fuel cause major U.S. airlines to raise airfares sharply. EXPLAIN how this increase in airfares would affect each of the following.
A) The Demand for air travel (be careful)
B) The Demand for hotels
C) The Demand for rental cars
D) The supply of overnight mail
I have an idea of the answers but I'm not and econ major and don't want to misinform her, any help you give will be appreciated!!
I myself thought that the deman for flights would go down, hotels would remain the same because people will still travel just find alternate ways, rental cars would go up because some may choose it as the alternate way to travel, and of course overnight mail will increase in price.
4 Answers
- Anonymous1 decade agoFavorite Answer
A. The demand for air travel would decrease. Rising price=falling demand. Alternative travel methods, train, bus and car may increase and fewer people would take non-essential trips. I don't see any twist in this question to require special care.
B. If people used alternative transport then hotel demand would be unchanged.
C. The demand for rental cars may increase due to them being an alternative to air travel.
D. The price of overnight mail would go up if it usually goes by air and this would reduce demand as people chose less expensive mail options.
- JuanBLv 71 decade ago
In A you move along the demand curve and fewer people fly at the new
price. You are on the same demand curve and it is just a different (higher) price. It was the supply curve that shifted.
The demand for B and C falls as fewer people fly. The demand curves shift in these as fewer people travel. Given the same supply, there is a downward pressure on price.
With the supply of D, you have increased the costs of being able to provide it. The supply curve will shift up with less offered at any given price.
Additional Details: You may be right, but the effect you describe isn't going to be 100%. With fewer people flying hotels and Car rentals will drop some. A little or a lot isn't part of the question. You are saying some people will substitute other things for their air travel and still travel. So the drop in demand might not be as large as we think. Sure, but some will substitute staying at home.
- 1 decade ago
The demand curve (a.k.a. the demand) for air travel would stay the same. However, less air travel would take place because the price of the tickets would hit on a lower spot on the demand curve.
Hotels: the demand curve would be lower (less demand for hotels due to less travel).
Rental cars: same answer as hotels.
Overnight mail: overnight mail is usually shipped by airplane, so the price would go up. This, however, would be because the *supply* curve of overnight mail had shifted.
Fun, eh? :)
