Term Paper for Economics

The smallest difference in the price can make the biggest difference. Since everything is limited in this world, people must make choices between different items because the resources which are necessary to fulfill their wants are limited which in turn causes the prices of the goods and services to get high. The article, "High fuel cost weigh on fragile airlines" by Brent Jang, talks about how the prices of the crude oil and the refining oil are increasing which is affecting the profitability of the airline industry.

As we already know after reading the article that price of a product and quantity demanded are negatively related, increase in the price of the crude oil will automatically decrease the quantity demanded for the resource. If we take a look at the graphs posted at the bottom of this paragraph, we can predict that when the price of the crude oil increases, the demand of the oil will tend to decrease. This will leave an effect on the ticket price to increase. Therefore, when the prices of the tickets will increase, the consumer confidence to purchase the tickets will decrease, thus quantity demand decreases.

If consumers are willing to buy more tickets, Air Canada and West Jet must be able to supply the customers with the availability of the seats, thus the demand curve and the supply curve for the amount of seats will increase and the price will stay ambiguous. Due to consumer confidences, Air Canada and West Jet do not need to worry about the tickets sold. Even though the costs of the tickets have increased, people are still willing to purchase tickets.

We know that increased consumer confidence has benefited Air Canada and West Jet. This graph shows us how consumers are willing to buy more tickets regardless of the price being high, which means that tickets have an inelastic demand, because the consumer confidence has increased. This shifts the demand curve to the right, causing an increase in the quantity supplied, considering a change in demand causes an increase in both equilibrium price and equilibrium quantity.

In addition to that, even the consumer confidence and the seat expansion may have been increased form the recession in 2009, it will still have an effect on the airlines profitability due to the operational expenses such as wages and maintenance expense. As a result of which, the expenses makes these two companies less profitable despite the gains from the higher ticket sales and seat expansions.

Increased oil prices can also affect the economy as a whole and that can turn into a recession or decline consumer's confidence. Thus, if oil prices keep rising it will create a shortage in demand for tickets and will increase the unemployment rate.

Air Canada and West Jet are dependent on many Europe and US flights, therefore whatever affects that Air Canada or West Jet have, it will also affect Europe and US market. It will damage