Economics Tuition – Video by Economics Focus

This e-learning video developed by JC Economics Tutor Simon Ng of Economics Focus examines the chapters of Theory of Demand and Supply and Elasticity of Demand and Supply, in which students are expected to explain how volcanic eruption and oil spill will affect the supply of air travel. It is imperative that students consider other related markets, like the hotel industry, to show how these events affect complementary goods and services as well as substitutes. Furthermore, students must illustrate these changes with the use of economic diagrams to show the results on the market equilibrium, which determines the price and output levels.

2010 marked a trying time for the airline business. The eruption of the Icelandic volcano caused cancellations of 95,000 flights over Europe. One week later, the BP oil well exploded in the Gulf of Mexico, resulting in the worst oil spill in US history. Using economic analysis, discuss the likely impact of the above events on the airline industry and its related markets. [25]

Analysis of The Question

For this question, the requirement of the question is to use the concept of demand and supply analysis to show how the above events will affect the stated airline industry and related markets in terms of the impact on market equilibrium of these markets.
There is also the need to understand how the relationship of the impact is connected through the use of knowledge of the types of demand.
There is also a need to examine the extent of change in demand and supply and the concept of price elasticity of demand and supply to help in determining the extent of change in price and quantity and the direction of change in price and quantity.

Source of Information

Part of knowledge needed for this question:

  • Concept of market equilibrium

  • How to explain the above events will affect the demand and supply of the airline industry

  • Types of demand and supply

  • Drawing of diagrams – changes in demand and supply