Chapter 2 Blog

http://www.economist.com/business/displaystory.cfm?story_id=12454133

Summary:

Earlier this year, the price of oil was very expensive and did not show any sign of lowering. As a result, 30 airline carriers have been bankrupt and more are expected to take place later on this year. But things are starting to look brighter because oil prices have recently started to drop shortly after those bankruptcies. Therefore, the beginning of this gloomy event for airlines ended up being an advantage for airline companies to make profit. Now, many old planes are being replaced with more fuel efficient ones.

Chapter Two Connections: Supply and Demand:

This article made a connection with chapter two’s supply and demand concept. When the price of oil was high, many airline companies were making very little profit or in some cases, losing money. This is in fact a supply problem rather than a demand one because the supply of oil went up so there are more tickets supplied. Another reason this is a supply question is because the cost of oil is so much that the airline companies are forced to either charge their customer to pay for fuel surcharges and have less sales or charge the tickets regular price for more sales. If they decide to charge the consumers more, this would move the supply curve to the left because there would be less tickets sold due to the increase in price. However, not charging the consumer would move the supply curve the the right because less there would be more tickets sold at a lower price. Since this is a luxury for most people. this is elastic. Although you may think that it is a necessity for all business people to take the plane, it really is not because the CEOs make the decision of travelling to somewhere else when they really do not need to. The bottomline is that it is not a necessity for the majority of the people.

Personal Reflection:

I agree that building fuel-efficient airplanes could make airline tickets more inexpensive; therefore, creating more of a demand of airline tickets. However, the oil prices right now are fluctuating quite a bit and may rise at anytime. Therefore, by the time they build their airplanes, the oil prices may be as high as before (especially in the current recession). As a result, the demand for airline tickets may be very low if the price of oil shoots up. If I were in their positions, I would wait until the price of oil settles before proceeding in constructing fuel-efficient planes. However, it is possible that airline companies are demanding for fuel efficient planes to be built or they would buy the used planes from the bankrupt companies. In order for the manufacturers to stay in business, they must build the fuel effcient planes. Since there are about 40000 workers working for this company, they must do as the airline companies say or all those jobs may start to decrease. Although this may not be true, there is a high possibility.