Question

16 Homework Set 3B: Market Demand and Supply 7. Which of the following would decrease the supply of airline travel? a. A reduced number of airline travelers. b. New airlines open and begin providing flights. c. Lower prices for airline tickets. d. Higher fuel costs. Questions 8-10 refer to the following graph, which shows a hypothetical economy's market for oil. Price of Idollars per barrel) 100 200 300 400 Quantity of all millions of barrels per year) 8. What is the equilibrium price of oil? a. SIO per barrel. b. $15 per barrel. c. $20 per barrel. d. $25 per barrel. 9. At what price would we observe a surplus of 200 million barrels of oil? a. $10 per barrel. b. $15 per barrel c. $20 per barrel. d. $25 per barrel. 10. Suppose the price of oil is unregulated and sellers are free to sell oil at any price. If the current price of oil is $15 per barrel, we can predict that the price of oil will a. fall in the near future. b. remain at $15 per barrel for the foreseeable future. c. rise in the near future. d. will fluctuate between $10 and $20 per barrel.

Answer 1

Question 7

There are various reasons that can lead to decrease in the supply of the airline travel.

Some of the reasons are as follows -

1. When some existing airlines exit the market then number of airlines decreases leading to decrease in supply of airline travel.

2. When the cost of operating an airlines increases then airlines' are compelled to decrease the supply of airline travel.

3. Technological degradation can also lead to decrease in the supply of airline travel.

Fuel is an important input in operation of an airline.

So, an increase in the price of fuel will increase the cost of operation of airline and will compel the airlines to scale down their operations resulting in a decrease in the supply of air travel.

Thus,

Higher fuel costs would decrease the supply of airline travel.

Hence, the correct answer is the option (d).