Question

Let’s think about the market for air travel. From August 2014 to January 2015, the price of jet fuel increased

roughly 47%. Using the four-step analysis, how do you think this fuel price increase affected the equilibrium price

and quantity of air travel?

Short answer

Supply curve shift towards left.

Step-by-step solution

Step 1. Given information

The priceof fuel increases by 47%.

Step 2. Change in input price

When the price of Jet fuel increases by roughly 47%, the air Travels supply would decline and fewer flights will run in the air because air travel would be requiring fuel to run & it would be expensive for producers to use fuel at a higher price

Step 3. Change in supply

Due to decrease in supply, curve shift towards left and demand curve remains same because people still want to travel but due to increased prices of fuel, air travel might be suspended.

Step 4. Change in quantity

With the shift in the supply curve equilibrium price of air travel increases and the equilibrium quantity will fall thus, a new equilibrium is formed.