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Gas Prices And The Example Of Supply And Demand

863 words - 3 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 - which can vary by theprice and the conditions - a process that creates countless ticketing options on any givenflight. I can easily understand how people get confused about it, but on the other hand,those people are paying the extra price for that flexibility.Conditions relating to the flexibility of tickets, particularly the ability to change orcancel them, affects their price. Generally, most airlines try to encourage booking yourticket early by providing and implementing discount fares with restricted flexibility, witha mix of higher fares that have more options.The closer you get to your departure date; airlines tend to alter this "mix" as theyTry to 'wring' the most value out of the fixed number of seats leaving the ground.The Australian airline, Qantas has four fare "families" and each "family" has severallevels. "Every flight we operate from Melbourne to Sydney has a mix of all ofthose fares," said Will Owens, head of domestic pricing and yield for Qantas (The Age,pg. 1). This particular airline uses information based on the flight's financial performancerecords from the travel market to calculate the variety of pricing.As with most other airlines, prices vary depending on the time you travel. Business flights that begin at 7a.m. are more expensive, but offer a more flexible schedule. Other flight schedules such as afternoons during weekdays and Saturdays offer a cheaper fare, but may come with stricter flight schedules and more restrictions. There are two theories that follow these examples the price elasticity of demand and the income elasticity of demand. Price elasticity of demand is the relative responsiveness of quantity demanded to changes in price. Income elasticity of demand is the relative responsiveness of quantity demanded to changes in income. As well as price and income elasticity, there are also the economic concepts - the imposition of tax and the substitution effect. The imposition of tax on a good, or service in this case, increases the price of the good (or...

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