More people travel by airplane today than 10 years ago. Using supply and demand diagram, explain what might have happened in the market for travel to cause this increase.

1 Answer | Add Yours

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

If I understand your question correctly, we simply need to determine whether demand has changed or supply has changed and how they have changed.  We need to determine what kind of change would lead to more people travelling by airplane.  This could have come about in any number of ways.  The most likely are an increase in demand, an increase in supply, or a simultaneous increase in both.

One possibility is that supply has increased.  This might happen, for example, if the price of aviation fuel has decreased.  This would be shown by a movement of the supply curve to the right.  In such a case, more people would fly and prices would drop.

A second possibility is that demand has increased.  This might have happened, for example, because incomes are rising around the world and more people can afford to fly.  This would be shown by a movement of the demand curve upward and to the right.  In such a case, more people would fly and the price of flying would increase.

Finally, it is possible that supply and demand both increased.  You would illustrate that by moving both curves as described above.  If this happened, the number of people flying would increase.  However, we would not know for sure what would happen to the price of flying unless we know whether demand has risen more than supply or vice versa.  If supply rises more than demand, prices drop.  If demand rises more than supply, prices rise.  If both rise equally, prices stay the same.

Overall, then, an increase in the number of people travelling by airplane could have been caused by an increase in supply, an increase in demand, or both.

Sources:

We’ve answered 318,917 questions. We can answer yours, too.

Ask a question