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Econ selfie 1
Study on Airfare

Selfie at Chennai international airport

The air fare keeps on fluctuating due to reasons like crude oil prices and demand of airlines specially
during vacations on festivals. We have analyzed why the air fare fluctuates and how it affects the
demand for other means of transport.

Question 1: Reasons for price hike in airfare and its effects?

1. Increase in price of ATF (Aviation Turbine Fuel)

Effects of excessive fuel price rise in 2008 and falling rupees (in terms of US$) created a major
imbalance between supply and demand in Indian airline industries in recent years. Due to these
external factors, Indian airline industries, an oligopoly market, had to increase airfares in many folds
and some low-cost carriers (LCC) took a short run decision to shut down the operation in a few short
distance routes to avoid huge losses.
Airline’s Short Run Decision to Shutdown when cost of operation was high compared to revenue
earn, a few airlines particularly budgetcarrier, found it difficult to continue operation.

Economic reason for this was that what the airlines is willing to spend becomes less that what they
actually spend, as a result of which the producer surplus decreases.
2. Vacation/ Festival season/Crisis situation

Airline industry tend to hike the airfare in festival season as the demand of the air travel increases.

This is explained by demand and price curve.

The demand for air travel increases during festivals or vacations,but the supply remains constatnt as
a result of which the price rises.

As the demand rises from Q0 to Q1 keeping the supply S constant ,the price of the airfare rises from
P0 to P1, and hence the equilibrium shifts.

Question 2: How these hikes impact the upper middle class and lower middle class?

Upper Middle class passengers reduce the number of trips as the consumer surplus reduces due to
increse in price.

Lower middle class customers are the marginal customer which on increase on airfare tend to use
substitutes. The willingness to pay for a ticket is less than the amount they actually pay, hence they
tend to avoid taking air trips and prefer the substitutes.
Question 3: How this hike impacts other transportation services?

(Graph shows increse in train travel and decresase in air travel)

It indicates the drop-in number of the airline passengers in 2008-09 compared to 2007-08, while
increase in the number of railway passenger at that time. It was observed that when air traffic
during April-November, 2008 declined nearly 4%, number of passengers traveling in air-conditioned
bogies of trains increased by 18.33%.

Substitution effect (increase in number of the railways passengers) was observed, maintaining the
law of demand of Economics. Recently, when fuel prices are reduced (by nearly 57% from August
2008 price), competition in the market returns and being price taker in the competitive market,
airline industries have started slashing their airfares.
Question 4: Impact of controlled prices on number and type of routes?

When the airfare rises above certain limit, government intervenes and implements price ceiling so
that airline tickets are made available to consumers at affordable prices. These price caps are not
implemented on all the routes and are generally implemented on those airlines which connect
remotely located cities where other means of transport are less or there are no airline connectivity.

The demand supply curve in case of price ceiling is shown below:

1. In the above figure we see that, although the price declines, quantity supply after price
ceiling also declines and quantity demand is more. This results in overall ticket shortage.
2. There is an overall loss in revenue to the airline companies as well as to the customers due
to supply shortage

In Indian context, price for 1 hr flight is fixed to 2500 Rs. To avoid these losses, government
compensates the airlines for empty seats so that airlines can reach their break even and
continue operating flights in selected routes at lower prices to maintain airline connectivity.

Certain interesting economic phenomenon in Indian airlines industry were observed.

Analysing all the above phenomenon, the following conclusions can be drawn.

1. When prices rise, demand falls

2. When price of one service rise, demand of substitute rises
Econ Selfie 2
Decreasing demand for stand alone cameras

Photo With Digital Camera

Demand for standalone cameras have decreased due to presence of good quality cameras in smart

The Cameras manufacturing industry showed a negative growth trend for continuous 7 years. One of
the reasons for this declining production is significant improvement in quality of smartphone

1. Even though the number of images clicked and posted on social media sites has increased,
number of Digital Cameras purchased is still reducing because pictures are now being taken
from smart phone cameras.
2. Due to the advent of technology, we have smartphones these days with good quality
cameras at affordable prices. People prefer to buy a smartphone with a better camera
rather than a standalone camera.
3. The above phenomena has led to the shift of demand curve towards left. Keeping the supply
unaffected, we see that demand for cameras have declined. The same is evident from data
collected for cameras manufactured from 2010 to 2016(in millions)
4. We see that due to the presence of substitute product i.e. smart phone, demand for camera
Demand Curve

Since the demand for cameras decreases, we shift the curve towards left. To obtain the new
equilibrium the supply keeps reducing.
As a result of which the producer surplus decreases.
The marginal suppliers shut down the business due to reducing margins.

The way ahead

1. Due to technological advancement, the camera quality in smart phones will significantly
improve and low end digital cameras will no longer be required.
2. There is a growing interest towards professional photography so the demand for
professional cameras is likely to increase in years to come. Companies should focus on this

Selfie in Amusement Park

An amusement park sometimes referred to as a funfair or theme park is a group of entertainment,
attractions, rides, and other events in a location for the enjoyment of large numbers of people. A
theme park has landscaping, buildings, and attractions that are based on specific themes or stories.

Amusement parks industry in India is more than two decades old and is still at nascent stage. India’s
stint with amusement parks started with opening of Appu Ghar, the first amusement park, in 1984.

Amusement park prices can fluctuate due to School vacations, presence of competitors and other
external factors. How these factors affect pricing is explained below

Amusement park market in Chennai is an oligopoly as majority of the market share of amusement
parks is shared by a few entities. The other entities in the region ie. Chennai are VGP Kingdom,
Queensland, Kishkinta Theme Park.

With increasing urbanization in Chennai, the outdoor playgrounds are getting converted to buildings.
This leaves children with limited options like indoor games, Online games and only amusement parks
for outdoor entertainment in vacations.

After an accidental death at Kishkinta theme park, all theme parks including MGM were pressurised
to upgrade the safety features. This unforeseen incident led to fear in people and further reduce in
number of customers, it took some time to get back that demand.

As the safety norms and regulations are increasing, the amusement parks are also increasing their
Demand Supply Fluctuations:
As there is an increase in demand due to vacations in the Summer season ie. April to July, MGM
hikes its price during this period ; especially on weekends.

Price Elasticity of Demand for Amusement Parks

1. The amusement parks can be categorized as luxury goods. Because of this, when there is
increase in price many lower middle class people will shift to other parks or substitutes for
entertainment. Hence ,the price elasticity of demand is high in this case.
2. In the case of higher middle class, they may not stop going to MGM, but we can say that
they will go fewer times when the prices are high.
3. Despite this, the MGM and other amusement parks increase the prices. The reason is that
they know that many families will visit atleast once as they don’t have the time to go to
amusement parks normally because of hectic schedule. So,even if all the middle class and
higher middle class people visit once during vacation ,they make high profits.