Question

1. Do you think the price elasticity of either supply or demand for airline flights to France (from the U.S.) will increase, decrease, or remain the same for each event? Explain your answer.

   1. Relations between the US and France break down, causing Americans to need an expensive visa to visit.

   2. The price of oil for airlines increases.

   3. The price of baguettes falls.

   4. The French real estate market takes a dive, causing AirBnB and hotel prices to drop significantly.

Answer 1

1. Relations between the US and France break down, causing Americans to need an expensive visa to visit.

If the relationship between the two countries break down, tourism will get affected badly. People will no longer prefer to go on vacation in another country. Thus, only those who will have dire need to go to France will chose to fly. Hence the value of their flight to France will be much, they will be ready to pay more or any price. Hence the price elasticity of demand will reduce.

1. The price of oil for airlines increases.

If price of oil increases, the cost of operation for airlines will also increase. And thus, they would be lesser willing to make consumer fly on lower price. Hence, the price elasticity of supply will increase.

1. The price of baguettes falls.

​​​​​​​baguettes is a bread of France. It is not related to demand and supply of flights between france and US, thus no effect on either elasticities.

1. The French real estate market takes a dive, causing AirBnB and hotel prices to drop significantly.

​​​​​​​Airbnb and hotel prices are related to tourism industry between the two country. If prices of these reduces, Americans will be more willing to travel to France and hence would be willing to pay even more price for flights. Thus, price elasticity of demand will reduce.