Question

oil prices increased 90% during the first half of 2008 just when the us recession was taking hold in other words the economy was on a decline. how did this affect the market for air travel? show a graph

Answer 1

So basically an economic recession arises due to many reasons mainly related to the policy-frame work by the government which ultimately affect the consumer demand in the market, and thus due to low demand, industrial output start decreasing which affect the whole job market in the country and again it leads to low demand by the consumer in the market due to decrease in their income level and once this cycle starts it remain to continue until an external intercept will not be taken by the government which may be in the form of changing policy frame-work or by working on their demand management policy, which somehow helps the overall economy to grow, thus in the above-discussed situation if the economy was on decline definitely the demand in the market is decreasing and income level of the citizens are also going down due to low industriaal output and there is an increase in the unemployment rate in the recent months as well, and along with all of these if there is an increase in the price of oil which is actually an input for airline industry so their operational cost will increases and ultimately it leads them to increase their price to maintain the profitability but as the economy is going through the recession overall income level of the consumer are going down that means now they have less purchasing power then they have earlier thus the overall demand of the Air lines services will decrease and it will be much higher then the natural elastic value beacues in the current situtaion their is an increase in the cost of airlines services and at the same time income level of the citizens ae continously decreasing thus the overall demand will decrease and the decrease in the demand will be more then as it should be in an normal economy beacues the economy itself is in recession.