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# Elasticity of demand and supply in the airline industry

Elasticity is define as the “quality sth has being able to stretch and return to its original size and shape”. (Oxford advanced learners dictionary 6th edition)
In Physics elasticity is defined as “the property of a substance that enables it to change its length, volume, or shape in direct response to a force effecting such a change and to recover its original form upon the removal of the force.” (dictionaryreference.com).
Suppose that your employer allows you to work extra hours more after your contracted hours for extra pay at the end of the month, the amount of extra money you will earn at the end of the month will depend on how much more extra hours you are able to work. Then how responsive you are to this offer can be seen as elasticity.
Therefore I will define elasticity as the measure of degree of responsiveness of any variable to extra stimulus.
From my example above elasticity can be calculated as
Em = percentage of extra money you earn/percentage of extra hours worked.
The concept of elasticity can be used to measure the rate or the exact amount of any change. In economics elasticity is used to measure the magnitude of responsiveness of a variable to a change in its determinants (sloman) such as (demand and supply) of goods and services.
For the purpose of this essay am going to be examining the concept of elasticity of demand and supply in the airline industry.
Types of Elasticity Price or own price Elasticity of demand
Income elasticity of demand
Cross elasticity
Price or own price elasticity of demand
It is the measure of the degree of sensitivity or responsiveness of quantity demanded is to a change in price of a product (Edgar.K. browing). Our assumption often is that all demand curves have negative slopes which means the lower the price the higher the quantity demanded but sometimes the degree of responsiveness vary from product to product. For example a reduction in the price of cigarettes might have only bring about a little increase in quantity demanded whereas a supermarket reduction in the price of washing up liquid will produce a big increase in quantity demanded The law of demand and even Common sense tells us that when prices change, the quantities purchased will change too. However, by how much? Businesses need to have more precise information than this – they need to have a clear measure of how the quantity demanded will change as a result of a price change.
Price elasticity is calculated as the percentage (or proportional or rate) of change in quantity demanded divided by the percentage (or proportional or rate) of change in its price.
Symbolically:
PÐ„D=%Î”Q/%âˆ†p
Here Ð„ denotes elasticity and âˆ†
Graphically
Elasticity measure in percentage because it allows a clear comparison of changes in qualitatively different things which are measured in two different units(sloman). It is the only sensible way of deciding how big a change in price or quantity, so their calls a unit free measurement.
Generally when the prices of good increases the quantity demanded decreases, thus either of the number will be negative which after division will end up in a negative result, due to this fact we always ignore the sign and just concentrate on the absolute value, ignoring the sign to tell us how elastic demand is.
The larger the elasticity of demand, the more responsive the quantity demanded is of elasticity.
Degrees of elasticity
Perfectly elastic
Highly elastic
Relatively elastic
Relatively inelastic
Highly inelastic
Perfectly inelastic
Elastic Demand Elastic demand occurs when quantity demanded changes by bigger percentage than price.(Sloman) Here customer has lot of other alternative. The value is always higher than 1, the change in quantity has a bigger effect on total consumer spending than in price. For example if there is a reduction in the price of a bottle of washing up liquid say from £1.00 to 50p people will buy more probably to store up, in doing this they will end up spending more on the product than they will do on a normal day.
An Inelastic Demand Elasticity in airline industry
The airline industry is deeply impacted by the elasticity of demand, externalities, wage inequality, and monetary, fiscal, and federal policies. The elasticity of demand is based purely on current market conditions, thcustomer’s September 11th tragedy had a negative affect on the entire travel industry. It impacted the fiscal and monetary policies, supply and demand, and it created staffing problems nationwide. The rate of wage inequality is improving due to legislation that has created a pay increase in participating cities across the United States. The airline industry is viewed has being unstable because it is based on current market conditions, and the market is always changing. purpose for travel, and available substitutes. Externalities continue to influence the elasticity of demand. The
Elasticity of Demand The airline industry is an extremely unstable industry because it is highly dependant upon current market conditions. Events such as inflation, terrorist attacks, and the price of oil have greatly influenced the demand for airline tickets throughout the years. Competition consistently affects the price of airline tickets because it gives the customer other options. Substitutes that are existence is traveling by train, car, or avoiding travel whenever possible. Customers have resorted to all named substitutes during turbulent times in our economy. The elasticity of demand is greatly affected by the customer’s purpose for travel. Airline customers typically fly for business or pleasure. With the wave of technology, a large percentage of business travel has been eliminated to conserve spending.
Elasticity
In the airline industry, price elasticity of demand is separated into two segments of consumers and is considered to be both elastic and inelastic. A good example of how elastic demand is related to the airline industry is in relation to travel for pleasure. Pleasure travellers will be affected by the amount of travel they do based on the demand increase or decrease, affected by prices that lower with high demand or prices that rise with low demand; directly attributed to competition in this market (Gerardi

## Difference Between Takaful And Conventional Insurance Economics Essay

Takaful is an Arabic word which explains as “guaranteeing each other” (Tan Kin Lian, 2006). Haemala Thanasegaran (2008) also defined Takaful as mutual insurance in the Islamic system with compliant with principles of Shariah which is known as Islamic law. Shariah is attributing to direct Muslims by following principle which is: (W. Jean Kwon, 2007)
Fard or wajib also known as halal which is obligation strictly enforced by Islamic law.
Haram or mamu related to absolutely prohibition or unlawful activities.
Mandub or mustahub which means that what is suggested or the activities that individuals are ought to do as own advantages.
Makruh refer to what is discouraged or the activities that individuals are need to deny due to own benefits.
Muhab is about permissibility or the activities that under the Islamic law is neutral.