1.5. According to the Bureau of Transportation Statistics, due to an increase in demand, the average domestic...

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1.5. According to the Bureau of Transportation Statistics, due to an increase in demand, the average domestic airline fare increased from $367.17 in the fourth quarter of 2005 to

$381.99 in the first quarter of 2006, an increase of $14.82.

The number of passenger tickets sold in the fourth quarter of 2005 was 178.1 million. Over the same period, the airlines’
costs remained roughly the same: the price of jet fuel averaged around $1.85 per gallon in both quarters (Source: Energy Information Administration), and airline pilots’ salaries remained roughly the same (according to the Bureau of Labor Statistics, they averaged $135,040 per year in 2005).
Can you determine precisely by how much producer surplus has increased as a result of the $14.82 increase in the average fare? If you cannot be precise, can you determine whether it will be less than, or more than, a specific amount?

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Economics

ISBN: 978-0716771586

2nd Edition

Authors: Paul Krugman ,Robin Wells

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