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    Economic Profile of the Airline Industry

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    Hello all, I am looking for assistance writing this paper on the AIRLINE industry. Any help would be greatly appreciated!

    Create an economic profile of the AIRLINE industry. Discuss how the following impact the industry.
    o Shifts and price elasticity of supply and demand
    o Positive and negative externalities
    o Wage inequality
    o Monetary and fiscal policies
    ? Conclude your paper with final thoughts on:
    o How the economy affects the success of your chosen industry
    o Economic influences that can affect the industry in a negative way

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    Solution Preview

    This web site:
    lists the elasticity of demand for various industries. Note that for airlines, the demand is fairly elastic; a lot less tickets will be purchased with price increases. Markets for products that are perishable, such as airline seats, will exhibit highly flexible prices.

    The elasticity of supply will vary depending on whether there is a large number of people flying. At off-peak times, there is plenty of extra capacity and marginal costs of production are low (the supply curve is elastic) whereas at peak times when demand is high, short run supply becomes relatively inelastic as airlines reaches capacity. A combination of higher demand and rising costs forces up the profit maximizing price.

    See the research presented in the paper
    "Assessing the Impact of the September 11 Terrorists Attacks on US Airline Demand," available here:
    The author states, "If we assume the estimated coefficients reflect a pure the demand shift-which, as discussed earlier, is consistent with the simultaneous decline in both quantity and price-the implied elasticity of the airline supply is 0.74."

    Also see the article "Where are the airlines headed? Implications of airline industry structure and change for consumers" available ...

    Solution Summary

    Wage inequality, positive and negative externalities, and shifts in the price elasticity of supply and demand in the airline industry.