Question

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

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.

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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)

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