In the scenario below, use a supply and demand diagram to illustrate the effect of the...

In the scenario below, use a supply and demand diagram to illustrate the effect of the given shock on the equilibrium price and quantity in the specified competitive market. Explain whether there is a shift in the demand curve, the supply curve, or neither

AirAsia X (AirAsia’s long-haul, low-cost international carrier) defers delivery of 78
Airbus SE A330neo planes. Show the effect of this cancellation on Airbus planes’
demand. I want proper answers with evidence regarding the effects on AirAsia and effects on Airbus in economy.

Solutions

Expert Solution

In the figure shown, D and S are the demand and supply curves of Airbus respectively. Now as given in the question as AirAsia defers their purchase of 78 planes the demand for Airbus planes will fall. Due to the same reason, as these planes will have to be delivered in the future the current supply will fall.

Due to the aforesaid Demand and supply curve will both shift leftwards by the same amount. With initial equilibrium E, equilibrium price P and equilibrium quantity Q, demand and supply curve will shift leftward to D' and S' respectively. Equilibrium price will remain the same and qty will decrease from Q to Q'

Rahul Sunny answered 1 year ago

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