Question

Answer the following questions in essay form. Your submission should be a minimum of 500 words (about two pages, double-spaced). Pick only one market either a product and/or service market or a specific labor market. Be specific when answering the questions. Give an example of a market where you make purchases or work . Explain how the market works. 2. Who is/are the buyer(s)? 3. Who is/are the seller(s)? 4. How many buyers and sellers participate in this market? 5. What is the product and/or service being sold? 6. How are prices set in the market? 7. How is the quality/service set? 8. Are there innovations in the market? How do they occur? 9. In your market, is there a surplus, shortage or eqlbiu most of the time? 10. When (if ever) does the market come to equilibrium? How do you know when there is equilibrium?

Answer 1

Introduction

For the purpose of understanding the case study, let us consider the Airline Market which is ever expanding. Up since its inception when it was primarily used for military purposes only, the Airline industry has rapidly grown and become extremely popular among tourists and other people who might want to use the same.

Reduced Business norms and easier entry into the market segment for companies has largely decreased the costs of operations thus enabling companies to have higher volumes of customers while on the other hand, it is also true that competition has made the process very difficult since customers expect nothing but the very best.

Case Specifics:-

1) Explain how the market works?

The Airline Product Market works like most others on the basis of demand and supply of the industry and the service which is being offered to the consumer. It takes into consideration all other elements also such as time, layovers if any and the overall experience and service that is provided to the consumer.

Long Distance Flights for example work by considering all of the above elements since cost is not the only consideration for such buyers. The market also caters to different customers by offering different products in the same market type. While some people desire only to have low cost carriers and offerings, others prefer luxury and thus the industry caters to the needs of both.

During peak season when the demand is high, the prices adjust accordingly and are flexible to adjust even when the demand is low keeping fuel and operating costs in mind.

2) Who are the Buyers?

The buyers of the industry vary, and include local domestic flyers wanting low cost deals for themselves, to others who travel long distances inter country travel that search for a better offering.

Also, the buyers include those, who want premium services for themselves and are ready to pay the required fees even when the prices of the products may be relatively higher.

Thus the industry caters to the interests of a wide range of buyers from low cost demanding customers to others that need premium facilities.

3) Who are the Sellers:-

The sellers in this case, are the airlines and carriers that provide customers the services of the aircrafts so that they can travel from one location to another. These are present in most countries and may or may not be of a foreign origin as the country mandates.

Further, the sellers ride high on cash and are big giants since the industry is usually not open for all and requires lots of compliance issues to be handled before one can actively participate in the industry respectively.

4) How many buyers and sellers participate in this market?

The number of buyers is comparatively larger than the number of sellers in the market place. The buyers comprise of all citizens and people from other countries that are looking to enter ours or to travel domestically within the political boundaries of the country.

The demographics of the average consumer is such that they tend to be upper middle class and higher class people who can afford the services on offer. The sellers on the other hand, tend to be large companies that operate aircrafts domestically and/or internationally depending on the demand and size of operations respectively.

5) What is the Product/ Service Being Sold?

As explained the product or service which is being sold is to allow people to travel long distances in relatively lesser time when compared to other traditional methods. It allows for easier transportation to take place thus reducing the amount of time required.

Further in some cases, luxurious services are also offered as in the case of business class travelers to accommodate that kind of passengers also.

6) How are prices set in the market?

The prices of the market space are equally determined by the forces of demand and supply and are regulated by national agencies from time to time. However they consider the cost of operations, taxes and cost of fuel as important factors while setting ticket prices. Also distance is an equal consideration while deciding the prices for the services offered.

Further most customers are divided into classes such as economy, economy plus and luxury and priced according to the services each one desires for respectively.

7) How is the Quality Set?

While the overall quality of airline travel is expected to be relatively higher than any other traditional form of transport, since the prices reflect accordingly also. The quality of the product is set in a way that it allows for all types of customers to be accommodated for.

The services provided by the same airline carrier may differ internationally and locally also and is indicative of the costs involved. Further the breakdown of the prices into economy and business class segments allows for quality of services to be set which are clearly indicated at the time of booking as well.

8) Are there innovations in the markets? How do they occur?

The airline industry is indeed full of innovations in the market space. These occur at most times due to the excess competition that prevails in the market space.

The innovations may increase the services that are offered or the amount of people which the same plane can take with it thus increasing profits.

Over a period of time the industry has reshaped by innovation and things like high quality meals, entertainment and information centers and even bars have emerged in the aircrafts that allow for all kinds of people to be catered to.

9) In your market, is there a surplus, shortage or equilibrium most of the time?

The market at most time is in equilibrium since most people tend to get flights as long as they book these on time. Times of shortage or surplus occur during rapid increase or decrease in demand during peak season, but to a certain extent, the industry has developed itself to be able to deal with such problems also.

10) When does the market come at equilibrium? How do you know there is an equilibrium?

The airlines industry like any other is said to be in equilibrium when the interests of both the consumers and producers are maximized. Therefore, for a low cost carrier this happens when it gets 100% customers at the rates offered. And for the consumer this translates into better affordability.

On the other hands that for the premium customers is based on quality of delivery while for the airlines it comes to profit maximization.

The industry comes to an equilibrium when the interests of both the consumers and the sellers is maximized respectively.

Please feel free to ask your doubts in the comments section