Tuition Singapore H2/H1 Economic Tuition – Model Essay 1

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Tuition Singapore H2/H1 Economic Tuition – Model Essay 1

Question

A rise in fuel prices and a rise in income can have different effects on passenger air travel depending on the travel class such as budget, economy or business class.

Assess how the market for passenger air travel and its related markets might be affected by these changes.                                                                                                                                                                            [25]

Model Answer

Firstly, the market for passenger air travel and its related markets can be largely assumed to be a free and competitive market. Hence, they are subject to the forces of demand and supply, influencing the price and output of firms, as well as the total revenue of these firms. For the air travel market in particular, it has different sub-markets such as budget, economy and business class that have different price elasticities of demand, hence they are likely to be affected differently.

A rise in fuel prices would cause the cost of production of airlines to increase since fuel is an essential factor input in the production of flights and its associated services.

Tuition Singapore H2 H1 Economics Tuition Model Essay 1

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