There are two major tools which are microeconomic tools and macroeconomic tools for economic analysis. This report will use both tools to analyze the airline industry economics and trends. It will talk about how the pricing setting and decision making throughout demand and supply curve, is the elasticity of quantity demanded and supplied elastic or inelastic. Furthermore, this report will indicate the importance of understanding of GDP rate, the inflation rate and unemployment rate. Also, how to managing the recession of the airline industry.
Throughout it report, it is easy to be seen the elasticity of quantity demanded and supplied, this information can help industry and government to determine the company style and make decision when the changes happened in demand and supply.
Table of Contents
Executive Summery i
1.0 Introduction 1
2.0 Microeconomics 2
2.1 The Demand curve 2
2.1.1 The Income Elasticity of Demand 3
2.1.2 the Own Price Elasticity & Cross Price Elasticity of Demand 5
2.2 The Supply Curve 7
2.3 Equilibrium Price 9
3.0 Macroeconomics 10
3.1 Gross Domestic Product (GDP) 11
3.2 Inflation & Unemployment 12
3.3 Management of recession 13
4.0 Conclusion and Recommendation 14
5.0 Reference 15
This report is talking about the demand and supply changes of air travel which happened due to several economic reasons. The objective of this report that is to analyze what contributes to changes in demand and supply for the airline industry.
First of all, it talk about microeconomics of air travel, the relationship between demand and price, the demand curve and supply curve which relative the air travel. Also, this report will indicate the elastic or inelastic in nature of the airline industry. Secondly, it describe the influence of air travel through the macroeconomics tools, such as how do changes in economic activities measured by real GDP affect the air travel industry. Moreover, how do the inflation and recession affect airline. Finally, analyze the demand and supply curve via several tables, and diagrams.
This report will be used for analyze and estimate the economy trends through microeconomic tools and macroeconomic tools.
Firstly, microeconomics deals with the activities of individual units within the economy: firms, industries, consumers, workers, and so on. Because resources are scarce which means the excess of human wants over what can actually be produced to fulfill these wants, so people have to make choices. Society has to choose by some means or other what goods and services to produce, how to produce them and for whom to produce.
2.1 The Demand curve
The demand curve is a graph showing the relationship between the price of a good and a quantity of the good demanded over a given time period. Price is measured on the vertical axis, quantity demanded on the horizontal axis. The resulting demand curve is downward sloping or negatively sloped. In terms of air travel industry, the demand for air travel is sensitive to changes in air travel prices and incomes, in the other hand, the demand of air travel is elastic demand which means where quantity demanded changes by a larger percentage than the price. If ignore the negative sign, it will have a value greater than 1. However, the degree of its demand elasticity will vary according to different situations, such as its own price, the price of competing or complementary goods and services, income levels and taxes. This report estimates the demand elasticity of air travel under various scenarios and locations, and focuses on three main types of demand elasticity, the income changes, the own price of airline and the cross price changes.
2.1.1 The Income Elasticity of Demand
The income elasticity measures the elasticity of demand for a good to changes in individual or aggregate income level.
If the income elasticity is greater than 1 means the quantity demanded changes is greater than the change of