Question

Explain the effects of airline deregulation on airline pilots' salaries and on airline fares

Answer 1

Deregulation involves removal of restrictions on the entry and exit of new firms in an industry. So, when airline industry is deregulated then it means new firms can enter the industry freely.

As new firms enter the industry competition increases as well as demand for the factors of production increases. In airline industry pilots are factors of production, and with more firms entering the industry the demand for pilots will increase and as a result salaries of pilots will also increase.

Airline fares will decline as competition increases and new firms try to capture as much market share as possible.