Ib Economics Commentary 1 - Microeconomics

Topics: Supply and demand, Elasticity, Price elasticity of demand Pages: 3 (809 words) Published: March 3, 2013
Commentary #1
Syllabus Section: Section 1: Microeconomics
Word Count: 749
Date commentary was written: October 26, 2012
Date article was published: May 20, 2012
Rebecca Bundhun, (October 19, 2012) Cost of summer getaways hit as air ticket prices rise, The National, http://www.thenational.ae/thenationalconversation/industry-insights/tourism/cost-of-summer-getaways-hit-as-air-ticket-prices-rise

The cost of an airline ticket can fluctuate tremendously based on a number of factors. The goal of airlines is to maximize their capacity by having the greatest number of passengers on all trips. This may however be difficult, as airlines pricing is not only dictated by their own operating costs and profit margins required but they have to consider complementary items that could have an effect on supply and demand for their product.

By definition, demand theory explains the inverse relationship between quantity and price. This law explains that if the quantity available of a product or service wanted by the public is low, the price for that product or service will be high. As demand for a product or service increases, the price will increase. This law is critical as we are able to predict prices based on the demand of a product. In the case of airlines, they are able to predict that prices for their services will go up during the high travel months. People are willing to pay more for travel during the summer months, as they know that supply is limited and their available time is defined by their vacation schedules. If we were to graph this scenario, we would find that price and quantity relationship creates a maximum efficiency point called equilibrium point. The equilibrium point tells us the best combination of price and quantity. With the graph below, we can illustrate that some travelers will be forced to cancel their travel plans due to high ticket costs, just as we can identify travelers that will have to fly no matter what the cost of the fare is. However...
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