Economic Profile: Airline Industry
Economic Profile: Airline Industry
Introduction
The airline industry provides services for passenger and cargo transport. Over the years the airline industry has faired fairly decent. That is, until the September 11 tragedy in 2001. From 1995 through 2000, the airline industry earned about $23 billion then lost about $35 billion from 2001 through 2005 (McCabe, R., 2008). There are many factors that indicate the economic downfall of the airline industry after the September 11 incident. The purpose of this paper is to discuss some of these factors and their impact the airline industry. Issues for discussion include: (1) shifts and price elasticity of supply and demand, (2) positive and negative externalities, (3) wage inequality, and (4) monetary and fiscal policies. The final discussion (final thoughts) will include how the economy affects the success of the airline industry and economic influences that can affect the airline industry in a negative way.
Shifts and Price Elasticity of Supply and Demand Profits and losses in any industry are determined by the shifts of supply and demand. When there is a decrease in labor supply the equilibrium wage rate will increase and the equilibrium quantity of labor hours will decrease. In turn the wage rate increase will lower the demand for labor supply. As worker wage rates are increased employees are willing to work longer hours which increases the marginal utility. If employee wages were to be considerably increased to an outrageous extreme the result would be a diminishing marginal utility. “In other words, as a person’s income rises, the extra wellbeing derived from an additional dollar of income falls” (Mankiw, N. G., 2004). Correspondingly, when there is an increase in labor supply, the equilibrium wage rate will decrease and the equilibrium quantity of labor hours will increase. In turn the wage rate decrease will increase the demand for labor supply. The decrease in labor supply after September 11 wreaked
Introduction
The airline industry provides services for passenger and cargo transport. Over the years the airline industry has faired fairly decent. That is, until the September 11 tragedy in 2001. From 1995 through 2000, the airline industry earned about $23 billion then lost about $35 billion from 2001 through 2005 (McCabe, R., 2008). There are many factors that indicate the economic downfall of the airline industry after the September 11 incident. The purpose of this paper is to discuss some of these factors and their impact the airline industry. Issues for discussion include: (1) shifts and price elasticity of supply and demand, (2) positive and negative externalities, (3) wage inequality, and (4) monetary and fiscal policies. The final discussion (final thoughts) will include how the economy affects the success of the airline industry and economic influences that can affect the airline industry in a negative way.
Shifts and Price Elasticity of Supply and Demand Profits and losses in any industry are determined by the shifts of supply and demand. When there is a decrease in labor supply the equilibrium wage rate will increase and the equilibrium quantity of labor hours will decrease. In turn the wage rate increase will lower the demand for labor supply. As worker wage rates are increased employees are willing to work longer hours which increases the marginal utility. If employee wages were to be considerably increased to an outrageous extreme the result would be a diminishing marginal utility. “In other words, as a person’s income rises, the extra wellbeing derived from an additional dollar of income falls” (Mankiw, N. G., 2004). Correspondingly, when there is an increase in labor supply, the equilibrium wage rate will decrease and the equilibrium quantity of labor hours will increase. In turn the wage rate decrease will increase the demand for labor supply. The decrease in labor supply after September 11 wreaked
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