Sep 19 2008
Our IB and AP Econ classes here at Zurich International School have just begun our second unit of the year, where the concepts of Demand and Supply are introduced and the effect these have on prices is examined. The first assignment of the new unit was for each student to find an article discussing the demand for a particular good, service or resource, and post it to our Unit 2 wiki page.
If it’s ever unclear whether a change in demand for a good or a service can actually affect the price, the article linked here should make it perfectly clear that demand is a powerful market force. In an industry where it has seemed recently that prices only rise, a recent fall in market demand has driven prices downward, as firms have responded to consumer demand in order to sell their product, which in this case are seats on short and long-haul flights within and from Europe.
Falling demand for business and leisure travel is causing a marked decline in air fares, with UK fares to North America declining by nearly a half, according to American Express.
Air fares peaked earlier this year as a result of rising oil costs. But the slowing global economy has caused that to reverse.
The lowest economy class fares in Europe, the Middle East and Africa fell on average by 12.5 per cent in April to June compared with the first quarter, with long-haul fares down more than a quarter.
But UK fares suffered the sharpest falls, with the lowest economy fares down by an average of 20.2 per cent, including a 49 per cent fall in fares to North America and a 22 per cent decline in fares to Japan, Asia-Pacific and Australia.
- What factors are driving demand for air travel down within, to and from Europe?
- Why does the price of air travel fall as demand for air travel weakens?
- Which other industries may have to lower their prices as fewer and fewer people travel between European countries and North America?
About the author: Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author