Managerial Economics

(Exam practice qn)

Consider a tourism-dependent economy where the air travel industry is affected by two

incidents which occur concurrently. One incident is the economy runs into a recession

and unemployment had increased significantly. Another incident is the strike by pilots

after the collapse of discussions between the pilot unions and the airlines management.

Discuss with suitable air travel market diagrams the effects of these two incidents on

the equilibrium price and quantity of the air travel market. Your diagrams should reflect

the correct shapes of the demand and supply curves based on their price elasticities.