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Supply, Demand, And Pricing Essay

1080 words - 5 pages

If you are planning a trip somewhere, you could easily drive your car, take thebus, hop on the train, or take a most...but most people like to fly. Airplanes give us theability to travel long distances in only a fraction of the time it would take by any otherform of transportation.The costs of air travel is ever increasing and decreasing in line with the supplyand demand. Americans love to travel, as is proved by the massive crowds ion theairports. Airline passengers may eat the same meals and arrive at the same destination,but they will probably pay a different amount for their domestic flight to the peoplesitting in the same cabin.Air fares are determined by managing the "mix" of tickets - ...view middle of the document...

As with most other airlines, accept when running specials, some flights, includingbusiness peaks such as Monday 7am, are weighted towards more expensive and flexiblefares. Others, such as Saturday and midweek afternoon flights, are cheaper but suffermore restrictions. There are two theories that follow these examples; the price elasticityof demand and the income elasticity of demand. Price elasticity of demand is the relativeresponsiveness of quantity demanded to changes in price. Income elasticity of demand isthe relative responsiveness of quantity demanded to changes in income.As well as price and income elasticity, there are also the economic concepts - theimposition of tax and the substitution effect. The imposition of tax on a good, or servicein this case, increases the price of the good (or service) and thus, practically speaking,moves the supply curve upward. In other words, the direct and indirect effect of thesecurity tax, increases the cost of air travel and reduces demand. The substitution effectis the change in quantity demanded, resulting from a change in relative preices betweentwo goods, or services. So, as the differential price of air travel on major airlines widensversus low-cost carriers, the demand for travel on major airlines decreases. Also keep inmind that businesses are increasingly substituting travel with means such asvideoconfrencing.From the consumer aspect, personal flexibility is crucial in finding cheaper fares.Peak-hour flights booked a month in advance can appear almost identical, but try tochange times and conditions and disparities emerge. "For example, on Friday, July 23,the 7.15am Melbourne to...

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