Economics Practice Paper

Economics Practice Paper

  • Submitted By: will1781
  • Date Submitted: 12/14/2008 4:18 AM
  • Category: Business
  • Words: 567
  • Page: 3
  • Views: 440

1. During the period 2002 – 2005, the price of crude oil has generally gone up in price per barrel, the price per barrel has nearly trebled in this time. As the price of oil has gone up so has the rate of change of air fares apart from a ‘one off’ drop in air fares in 2004 which did not correspond with the change in crude oil prices. Between 2002 – 2005 the annual rate of change of air fares has gone up but it rapidly increased between mid 2004 – mid 2005 after an all time low of change of air fares.

2. Price elasticity of demand (PED) attempts to measure how consumers react to a change in price. The availability of alternative modes of transport affects the demand for air travel because there are a lot of other substitutes of transport that can be used, e.g. instead of flying from London to Edinburgh you could use a train which would be efficient as it would get you there in the same amount of time, after considering airport waiting times and most airports are outside of city centres. Also you could drive instead of using domestic flights. The recent introduction of a superfast Eurostar train service from London to Paris must surely affect the use of air travel as it can easily compete on travel times, but choice of mode of travel will still be affected by price.
Tourists are much more likely to put off trips to specific locations when faced with high fares because most people travel to places that cost the least. e.g. if a person just wanted a beach holiday, it wouldn’t matter which city they went to in Spain as they would get sun and beach at any destination but they may well pick the city with the cheapest flights to get to, so a lot of European cities have a high price elasticity of demand as there are so many similar alternatives.

3. At the moment, there is no alternative for using an airplane without kerosene as there is no substitute. There are two types of airplane flight, short haul flights and long haul flights.
There are substitutes for short...

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