In a recent fare war, America West reduced the price of its roundtrip airfare from Charlotte, North Carolina, to New York City from $198 to $138 to match American Airlines. America West matched the fare reluctantly, saying it would cost the company
millions of dollars in revenue for those tickets to be sold for less. American, on the other hand, believed the fare cut would increase its revenue even if rival airlines matched the lower fares. What different assumptions about the underlying price elasticity of demand for airline tickets on that route did each airline believe true?
America West must have believed demand in this price range to be inelastic, so that a fare cut would lead to a relatively small increase in quantity demanded. American must have believed the opposite: that the fare cut would stimulate a more than proportional, or elastic, consumer response.
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Based on the figure above, international trade leads to
A) a net gain in surplus of $12.5 billion. B) a net loss of surplus of $12.5 billion. C) a net gain in surplus of $27.5 billion. D) a net loss of surplus of $15 billion. E) no net gain or loss of surplus.
When comparing the composition of world trade in the early 20th century to the early 21st century, we find major compositional changes. These include a relative decline in trade in agricultural and primary-products (including raw materials)
How would you explain this in terms of broad historical developments during this period?
If business executives become more optimistic about the future, we would expect that
A) the investment curve would shift outward to the right. B) the saving function would shift up. C) the consumption curve would shift up. D) investment spending would decrease.
If the quantity supplied is exactly the same regardless of the price, supply is