Question

Due to corona virus explain the price elasticity of demand when demand decreases for the airline industry and the income elasticity of demand when there is a fall in disposable income what will happen to the airline industry as a luxurious good provide graph provide graphs and calculations where necessary. Explain how the airline industry can deal with such changes e.g what will happen if they decrease the price or increase price etc.

Answer 1

Answer) Although all companies would not be equally exposed to corona virus risk, however the airline pandemic has certainly shaken the airline industry. Business travellers are grounded because the conferences and meetings are cancelled while the leisure travellers are scared of travelling. Normally United Airlines lure the reluctant customers with the discounting fares, however today it is not working due to the outbreak of COVID-19. Today the United Airlines has slashed the international flights with nearly 85% as it was operating six months back. Since the demand has collapsed due to Covid -19 thus have elastic demand. The virus is fast-spreading and no vaccination till now has abruptly dented demand and supply across industries as well as nations. In the enclosed graph a negative demand shock due to Covid 19 caused prices to collapse and lead to an oversupply. The demand has reduced from D 1 to D2 causing an excess supply that results to a downward in price. An increase or decrease in price in near will not impact it's demand in near future as most of the countries have closed the tourist spots and not allowing the international fligts