Answer to Question #240524 in Microeconomics for Vincent Ogechi

Question

1.Identify the market structure of Domestic Airlines in Australia. Explain how you reached your decision using economic theory and facts.

2a Compare and contrast the own price elasticity of demand of business travellers as opposed to domestic leisure travellers. Give one relevant example to demonstrate your understanding.

2b Briefly discuss the cross-price elasticity of demand between Qantas and Virgin Australia. Give one relevant example to demonstrate your understanding.

2c How did demand for and supply of Domestic Airlines in Australia change in the past 5 years? In your answer, you should briefly discuss two relevant conditions (determinants) of demand and two relevant conditions (determinants) of supply in this market.

2d Illustrate the changes in 2.3 above in a demand and supply diagram showing clearly the impact on the equilibrium price and quantity.

Answer 1

1. Oligopoly

Australian Domestic airline market is a duopoly involving 2 companies, Virgin Blue and Qantas. The companies account for every market profit as they compete one another.

2a) Price elasticity of demand of business travellers tend to focus on business aspects such as competition and price changes while domestic leisure leisure travellers never experience competition at this case.

2b) Research indicates Virgin Blue and Qantas tend to be having differences in their price elasticity. Commitment to market shares contributes to the competition on fierce pricing.

2C) Demand for and supply of Domestic Airlines in Australia has been shifting since 2015. This comes as 2015 experience high demand compared to 2019. The COVID-19 led to the highest decline in demand within the market.

2d)