Problem 6: Determinants of Supply and Demand In 2018 the price of oil fell to a 14-year low. For drivers, the cost of driving fell significantly as gasoline prices plunged. For the airline industry, the cost of operation also fell significantly because jet fuel is a major expense. a) Draw a supply and demand diagram that illustrates the effect of a fall in the price of jet fuel on the supply of air travel. b) Draw a supply and demand diagram that illustrates the effect of a fall in the price of oil on the demand for air travel. (Hint: think about this in terms of the substitutes for air travel, like driving, which has now become relatively cheaper than air travel.) c) Put the diagrams from parts a and b together. What happens to the equilibrium price and quantity of air travel?
Problem 6: Determinants of Supply and Demand In 2018 the price of oil fell to a 14-year low. For drivers, the cost of driving fell significantly as gasoline prices plunged. For the airline industry, the cost of operation also fell significantly because jet fuel is a major expense. a) Draw a supply and demand diagram that illustrates the effect of a fall in the price of jet fuel on the supply of air travel. b) Draw a supply and demand diagram that illustrates the effect of a fall in the price of oil on the demand for air travel. (Hint: think about this in terms of the substitutes for air travel, like driving, which has now become relatively cheaper than air travel.) c) Put the diagrams from parts a and b together. What happens to the equilibrium price and quantity of air travel?
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter7: Consumers, Producers, And The Efficiency Of Markets
Section: Chapter Questions
Problem 11PA
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