Answer to Question #272666 in Microeconomics for ash

Question

Suppose that you expect a ceteris paribus decrease in average incomes of 10% this

year compared to last year. How many aircrafts do you estimate that your company will

sell this year? How will it impact total revenues?

Answer 1

Solution:

When the average incomes decrease by 10% compared to last year, aircraft sales will be expected to decline by more than 10%. This is because of the decrease in disposable income for consumers. Therefore, they will not be able to afford to purchase aircraft given that the prices remain the same despite a decrease in their incomes.

The total revenue will also decrease massively due to a drop in aircraft sales made by the company.