Answer to Question #315716 in Macroeconomics for Isay

Question

 Illustrate in a supply/demand diagram, by shifting the demand curve appropriately, the effect on the demand for flights between Calgary and Winnipeg as a result of: (a) Substantial increase in government taxes for use of airports. (b) Substantial increase in the populations of both Calgary and Winnipeg. (c) The closure of an important land route from Calgary to Winnipeg. (d) Substantial increase in the price of flight tickets.

Answer 1

a) Increase in government taxes will lead increase in the prices for flights between  Calgary and Winnipeg from P0 to P2 in return reducing the demand for flights thus shifting the demand curve from D0D0 to D1D1.

a) Increase in the population of people who demand to take flights in both  Calgary and Winnipeg, this will as well lead to an increase in demand for flights thus shifting the demand curve from D0D0 to D2D2. In return this will lead to an increase in the flight price from P0 to P1. Similarly, the supply for airplanes will also increase from S0S0 to S2S2 to meet the rising demand.

c)The closure of an important land route between  Calgary and Winnipeg will lead to increase in flight prices from P0 to P2 thus triggering the demand curve to shift from D2D2 to D0D0.

d)Increase in flight tickets will also lead to a decrease in demand for flights making the demand curve to shift from D0D0 to D1D1.