Question

. What is the expected impact of increased security measures imposed by the federal government on airlines and consumers? What do you predict will happen to airline fares and volume of travel? Instructions: Draw a parallel shift in the demand and supply curves by grabbing, dragging, and then dropping the curves to the new positions. b. The impact of increased security measures on airline fares . The impact of increased security measures on the volume of travel

Answer 1

Answer:

Impact of security measures on airline fares - uncertain (see explanation)

Impact of security measures on the volume of travel - decreases

Explanation:

When security measures are increased by the federal government, it means that the cost of flying will increase. This affects both the supplier (airlines) as well as the consumer (travelers).

Refer Diagram from this point onwards :)

When there is increased security measures, airlines would have to be more cautious in their flying operations as they now have more legal standards to abide by. This will lead to a shift left in the supply curve from S1 to S2 causing a reduction in quantity supplied from Q1 to Q2.

At the same time, increased security measures will also discourage many travelers due to excessive rules and guidelines that they now have to follow while flying. Hence, there will be a left-hand shift in the demand curve from D1 to D2, causing quantity demanded to also fall from Q1 to Q2.

It is evident that the volume of travel will decrease with increased security measures. However, what happens to price is uncertain. it can be of 3 scenarios:

1. If quantity demanded shifts left equally to the left shift in quantity supplied, price will remain constant (as shown in the diagram).

2. If quantity demanded shifts further left than quantity supplied, supply exceeds demand. Thus, there will be a slight fall in price since now there is a surplus.

3. If quantity supplied shifts further left than quantity demanded, demand exceeds supply. Thus, there will be a slight rise in price since now there is a shortage.

Hope this helps!