Question
Amid rising oil prices in world markets, many carriers around the world including British Airways, Japan Airlines, Qantas, and Virgin Atlantic have dealt with high
Amid rising oil prices in world markets, many carriers around the world including British Airways, Japan Airlines, Qantas, and Virgin Atlantic have dealt with high kerosene prices by imposing fuel surcharges on passengers on long-haul flights. In particular, British Airways and Virgin Atlantic are estimated to have imposed about $500 million in fuel surcharges between 2004 and 2006, raising concerns that surcharges were used to generate additional revenues and not to cover fuel costs. Suppose you are interested in assessing the effect of such surcharges on the prices paid by the typical consumer. Your best estimates indicate that, without surcharges, the market demand for airline tickets is given by Qd = 500 - 4P and the market supply is Qs = 4P - 320 (both in millions), where P is the average price of airline tickets. The affected airlines are considering imposing fuel surcharges on consumers, which would ultimately increase airline fares, leading to a new demand function of Qd = 500 - 3P. How much additional money per unit would a typical consumer pay as a result of the fuel surcharges?
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