Question

what are the impacts of the macroeconomics business cycle on supply for the scheduled passenger airline industry. How might difference phases of the business cycle impact the airline industry

Answer 1

Passenger airlines demand is an elastic demand. It changes easily with change in income and change in Price. However, due to increase in absolute number of passengers its demand is getting inelastic now a days.

Business cycles has cycles of boom, recession, recovery. During boom national output increases and is is expected that income with people has gone up and it is reverse when recession happens.

It is expected that during booms supply of passenger airlines to go up as market is going towards to monopolistic competition where firms can enter easily.

However, as explained in paragraph one, demand is becoming inelastic as worldwide economies are expanding and hence supply is relying more on this increased demand rather than business cycles. Even during recessions, companies are surviving if they are able to change pricing strategies and routes adequately.