Managerial Economics

Question 1 

(a) 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. (Note: you do not need to consider possible impacts of the COVID-19 pandemic in your analysis.) 

For question 1(a), you have to explain in the following:

1)  recession and unemployment....how does it affect demand or supply

2)  strike...how does it affect demand or supply

3) fall in demand versus fall in supply on equilibrium price and quantity of the air travel market (3 cases involved, 1st case: demand fall more than supply fall, 2nd case: demand fall less than supply fall and third case: demand fall equal to supply fall)

4) price elasticity....effects (diagrams of both the demand and supply curves)

 (36 marks)