Question

The article is highlighting about issue of reducing the price by cutting the cost and tax. How will this issue affect the supply and demand of customers in the airline industry?

Answer 1

Reducing price by cutting cost and tax means that producers have to pay less tax and marginal cost of production reduces , so producers can supply more at each price level . Thus market supply will increase . On the other hand since there is cost reduction in production which means that producers can lower the market price without losing their profit margin . So price declines in the market with increased supply which causes inverse effect on quantity demand ( ceteris paribus ) . So the quantity demanded increases in the market .

So in the airline industry equilibrium price falls and quantity rises . More consumers can afford airlines now due to lower prices .