Large airlines sometimes engage in fuel hedging as a way to avoid wild changes in jet fuel prices. To fuel hedge, an airline purchases a futures contract from an oil company that states they will purchase a set quantity of jet fuel at a specific price in the future regardless of what the actual market price is in the future. What do you expect to happen to the price of jet fuel in the future if the price of a fuel hedge decreases? Why?

Learning Objective 6.4 Be ready to harness market forces in your own life.