Ib Economics Commentary 1 †Microeconomics Essay

Rebecca Bundhun, (October 19, 2012) Cost of summer getaways hit as air ticket monetary values stand out, The National, http//www.thenational.ae/thenationalconversation/industry-insights/tourism/ toll-of-summer-getaways-hit-as-air-ticket- equipment casualtys-riseThe cost of an airline ticket hindquarters fluctuate tremendously base on a number of factors. The goal of airlines is to maximize their capacity by having the greatest number of passengers on all offsets. This may however be difficult, as airlines pricing is non only dictated by their witness operating costs and profit margins required but they have to contract complementary items that could have an effect on supply and motivation for their product.By definition, demand theory explains the inverse relationship between quantity and price. This fairness explains that if the quantity avail able of a product or assistance wanted by the public is low, the price for that product or service testament be high. As demand f or a product or service increases, the price go out increase. This law is critical as we are able to predict prices based on the demand of a product. In the oddball of airlines, they are able to predict that prices for their services will go up during the high make a motion months. People are willing to pay much for travel during the summer months, as they know that supply is limited and their addressable time is defined by their vacation schedules.If we were to graph this scenario, we would uprise that price and quantity relationship creates a maximum efficiency point called equaliser point. The equilibrium point tells us the best combination of price and quantity. With the graph below, we can illustrate that some travelers will be forced to bring out their travel plans due to high ticket costs, just as we can identify travelers that will have to fly no matter what the cost of the fare is. However what economists tend to focus on is trying to find an equilibrium point betw een price and quantity.As we know, airlines provide a service to clients by connecting passengers to desired destinations worldwide. Although prices tend to be set by supply and demand, they are withal exposed to externalities. An externality occurs when the actions of consumers or producers pass water rise to positive or negative side effects on former(a) people, who are not part of these actions and whose interests are not interpreted into run intoation. A perfect example of a negative externality is the rise of potassium fuel. As a barrel of oil rises, the price of jet fuel also rises and consequently the price of an airline ticket also rises. Externalities can create a positive or negative demand or effect on a product or service.monetary value elasticity of demand is a term that helps us understand the standard of the responsiveness of the quantity demanded to changes in price. In general, if there is a great responsiveness of the quantity demanded, the demand is referred to as being elastic, if there is a small responsiveness, demand is inflexible. airline businesss take advantage of the existence of inelasticity. Mr. DSouza states in the article, People are still flying. People traditionally plan these breaks, and disregardless of the price, they fly.The demand is very, very high. On the contrary, airlines understand price elasticity and determination this well. They know that fare prices can be considered both elastic and inelastic based on the circumstance the traveler finds themselves in. Airlines study their client base, their competitors, and mathematical function patterns to predict the behavior of clients based on the condition. They know the probabilities of travelers changing to an alternating(a) airline if their price rises, if they modify their routes, but most of all, they use price elasticity to predict the success of promotions offered by themselves or any other competitor.Airlines want to lure business by creating special valu es and incite unplanned tourists to take the trip. Say an average ticket price from Dallas to Las Vegas is $550.00 airlines will create a promotional price and may offer the corresponding route for $199.00. Since the price is so low, people will often swallow that they are taking an unplanned trip and will justify the trip by thinking about the cost savings realized and not of the unplanned expense. The demand curve below shows how changes in price put out to changes in the quantity demanded.Although airline tickets are considered elastic and inelastic, most economists consider it elastic unless travel is done for business use. Domestic airline travel can be substituted by bus transportation, automobile, train etc. Airline travel is elastic especially as the persons income increases so their opportunity for travel increases and they will be more likely to move over the variation in cost.