Problem

A tariff is a tax on imported goods. Suppose the …

01:43

Problem 5 Easy Difficulty

Let's think about the market for air travel. From August 2014 to January $2015,$ the price of jet fuel decreased roughly 47$\%$ . Using the four-step analysis, how do you think this fuel price decrease affected the equilibrium price and quantity of air travel?

Answer

Answer not available

Related Courses

No Related Courses

Principles of Microeconomics for AP® Courses

Chapter 3

Demand and Supply

Discussion

You must be signed in to discuss.

Top Educators

Watch More Solved Questions in Chapter 3

Problem 1

Problem 2

Problem 3

Problem 4

Problem 5

Problem 6

Problem 7

Problem 8

Problem 9

Problem 10

Problem 11

Problem 12

Problem 13

Problem 14

Problem 15

Problem 16

Problem 17

Problem 18

Problem 19

Problem 20

Problem 21

Problem 22

Problem 23

Problem 24

Problem 25

Problem 26

Problem 27

Problem 28

Problem 29

Problem 30

Problem 31

Problem 32

Problem 33

Problem 34

Problem 35

Problem 36

Problem 37

Problem 38

Problem 39

Problem 40

Problem 41

Problem 42

Problem 43

Problem 44

Problem 45

Problem 46

Problem 47

Problem 48

Problem 49

Problem 50

Problem 51

Problem 52

Problem 53

Problem 54

Problem 55

Problem 56

Problem 57

Video Transcript

once again come to new problem. This time we're looking at issues connected to economics, and any time you talk about economics, there's always, um, supply and demand. So if I have a graph, uh, with the X and the Y axis, of course, the X axis, we're not going to call it just the X axis, but we're going to call it quantity, and then we also have the y axis, which we're gonna call prize. So there's a relationship between quantity and fries. Uh, in terms off demand, Aziz, the prices go down, you can see the demand increases. And then as the prices go down, you see, or rather, as prices go up as you increase the prices, you see that the supply increases. So there's an inverse relationship between demand and supply in the sense that, uh, prize on increasing prize leads to, uh, a decrease in demand or quantity demanded of a product. Um, on increasing prize, on the other hand, is attractive to suppliers, So it's gonna lead to a new increasing supply. And that's why the demand graph is downward sloping and the supply graph is upward slope. Um, our goal in this particular problem is that, um jet fuel prices, jet fuel prizes, um, decreased. So they went down. Okay, judge, fuel prices decreased by about 47%. That's almost like a 50% drop in prices. And so we want to use a four step analysis process to determine what's gonna happen to the, uh, equilibrium, price, equilibrium, price and equilibrium quantity. So, of course, you're reducing the price off something, and that's gonna affect equilibrium, price and quality. So think about this position right here as the equilibrium price on then. Think about this position right here as the equilibrium quantity. So we want to see what happens if you decrease jet fuel prizes. So, um, jet fuel jet fuel influences, influences. Hmm. Jet fuel obviously is gonna influence the cost of production. Um, influences, cost of production. And the cost of production in this sense is, um, air trouble. Right. So if you decrease jet fuel, obviously you're gonna decrease the cost off air travel. That's what's gonna happen. Cost of production of producing air travel goes down. Uh, so that means it's going to affect supply. Supply off jet fuel increases increases Since it's cheaper, it's cheaper to produce, uh, jet fuel. That's what's happening. You know, you reduce the price of jet fuel, and all of a sudden you increase the supply off jet fuel, you decrease the prize. So as prize off jet fuel goes down, supply off jet fuel goes up because it's cheaper to produce that Mm. And then the next thing. So that's one line item. We've dealt with two line items. You know, we've had a girl graph, and then now we're discussing what happens when you decrease the price of jet fuel. And then now we're going ahead and saying, um, if you on the other hand, if you on the other hand, if you Mm, If you decrease if you increase supply, this means that there is a right shift in the supply graph. Mm. Is the right shift in the supply graph eso in terms off our graphs we have We still have the price. We still have the quantity on the X axis. Um, we still have demand in the same position, but the supply changes position. So if if our supply was right here, it's going to shift right words, and then it's gonna be at second point. So this is supply number one, and this is supplying about two because the prize of jet fuel has gone down. So that means we could supply more. Um, and the outcome off this shift, the outcome of this shift is telling, because now, initially, you had on equilibrium prize right here, but you're gonna have a new equilibrium price. You're gonna have a new equilibrium. Price will go to show that in the right way. So you're gonna have a new equilibrium prize. We had the previous one, and then we had we have a new one right now, and, uh, it's lower than the previous all. There's a downward shift off the Libyan prize, and then something else that happens is that we are equilibrium quantity with equilibrium quantity. Eso que one p one. Uh, this is p to the new equilibrium price. And then we're also gonna have a new equilibrium quantity second one, and it shows that there is an increase in equilibrium quantity. So the outcome is that uh huh. A decrease in the prize off jet fuel, uh, minimizes production costs, um, in the yeah travel industry resulting resulting in on increase I mean, it's cheaper and supply. Yes. Jet fuel, Uh, with a right would shift. Mm. Uh, in the graph off supply, the outcome is a decrease in equilibrium, prize and on increase in equilibrium, quantity on increasing equilibrium, quantities. That's the outcome. So once again, we had a new problem. And in this particular problem, they judge, fuel prices decreased, and we wanted to see what happens. It decreased by 47%. So we wanted to see what happens to the Caribbean Prize in quantity and graphical techniques are helpful in showing this. You can see that, um, when you decrease jet fuel prizes, this supply graph shifts to the right because it's cheaper. So you're gonna have more jet fuel supplied at the same prizes as the Librium price goes down. And the outcome of that is we now have a new, um, equilibrium quantity. We have a nuke Librium quantity. Eso There's more production in the higher ah Heikal Librium quantity and the Lower Equilibrium prize. So hope you enjoy the problem, feel free to send any questions or comments, and have a wonderful day

Get More Help with this Textbook