Question

Carefully explain what is happening in the following markets. Indicate the impact if any on demand, supply, price and quantity:

b) In the market for airline tickets, airline carriers have drastically cut fares for international air travel resulting in a 3% increase in ticket sales. Meanwhile, recent heath considerations due to COVID-19 have caused an 11% reduction in the demand for international travel.

Impact on demand___________

Impact on supply__________

Impact on price___________

Impact on quantity____________

Chose from answers below:

Decrease towards equilibrium   

Increase towards equilibrium

No impact

Change in quantity uncertain   

Quantity above equilibrium

Price above equilibrium

Price below equilibrium

Shift outwards / to right

Shift inwards / to left

Excess supply

Change in price uncertain

Quantity below equilibrium

Excess demand

Increase equilibrium price

decrease equilibrium price

increase equilibrium quantity

decrease equilibrium quantity

Answer 1

Impact on demand - Decrease towards equilibrium

Demand decreases overall since the drop in prices is not enough to offset the drop in demand.

Impact on supply -Excess supply

Excess supply is left in the market since airlines have not responded to the drop in demand by reducing supply.

Impact on price- decrease equilibrium price

The equilibrium price falls since there is net lower demand and the suppliers have not responded by altering supply.

Impact on quantity -decrease equilibrium quantity

The quantity supplied is also lower since the quantuty demanded is lower.