Question

1.4 In the market for air travel, which of the following variables would decrease demand, ceteris paribus?

a) An increase in rental rates for hired cars, a substitute.

b) A rise in income for tourists.

c) A rise in the price of air travel.

d) A rise in the price of hotel accommodation, a complement.

Answer 1

(a) An increase in rental rates for hired cars which is a substitute would make air travel relatively cheaper than before and so air travel demand will increase.

(b) A rise in income for tourists will increase the demand for air travel as tourists purchasing power has increased.

(c) A rise in the price of air travel will decrease the quantity demanded of air travel but this is not the same as decrease in demand for air travel.

(d) A  rise in the price of hotel accommodation which is a complement will decrease the demand for air travel.

Hence the correct answer is option (d)