Question

The coronavirus pandemic might change air travel for a long time. In particular, airplane tickets are expected to become more expensive, as airlines are forced to comply with public health measures: fewer seats on flights, longer boarding times, and social-distancing in airports. Assuming this is the case, and using a supply and demand diagram, explain why airplane ticket prices will rise

Answer 1

The restrictive measures will increase the cost of business for airlines, so they will decrease supply. Lower supply will shift supply curve leftward, increasing price and decreasing quantity of tickets.

In the graph, D0 and S0 are initial demand and supply curves intersecting at point A with equilibrium price P0 and quantity Q0. When supply decreases, S0 shifts left to S1, intersecting S0 at point B with higher price P1 and lower quantity Q1.