Sample Aviation Essay Paper on Opportunity Cost

CRQ 4-2

  1. ATE: Explain what is meant by “opportunity cost” and give an example in aviation?  [5-points]
    Since resources are always scarce compared to the demand, every single choice one makes requires them to give up something else. Opportunity cost is that highest value trade-off the value of the next best option. In aviation, the airport manager can decide to buy a new aircraft instead of expanding the cargo area which therefore becomes the opportunity cost of acquiring the aircraft.
  2. ATE: What are some of the issues that complicate things when an industry such as aviation is regulated by the government?  Discuss this from an economic regulation and not safety as outlined in the textbook.  [5-points]
    Regulating aviation industry by the government may cause serious complications and difficulties in such aspects as making investment decisions and acquiring urgent facilities. This is because a lot of time has to be taken in consulting the government and abiding by the regulations.
  3. ATE: What is the difference between “microeconomics” and “macroeconomics”?  [10-points]
    Whereas macroeconomics is highly focused on looking at the government and higher up country decisions, microeconomics concentrates mainly on studying individual and business decisions.
  4. ATE: Explain what is meant by the “price elasticity of demand.”  Give an aviation example of a product with “inelastic” and “elastic” demands.  [10-points]
    Price elasticity of demand refers to a ration applied in economics to indicate the responsiveness of the quantity demanded of a product to adjust in price. In aviation, air tickets are examples elastic products while electricity, water and telecommunication services are examples of inelastic products.
  5. ATE: Very briefly define the law of supply and demand.  [10-points]

The law of supply and demand states that when a product is scarce but needed by many people, its price will rise. On the other hand, if the supply of the item is considerably larger than the consumer demand, its price will go down.

  • ATE: What factors influence the elasticity of demand for pilots.  [5-points]

The elasticity of pilots is influenced by such factors as nature of the service (i.e. luxury, comfort or necessity), income levels of passengers, time period, and level of air transport prices.

  • ATE: What are some of the factors that affect the demand for short-haul and long-haul aircraft?  Is there a difference in the factors that affect their demand? Please explain.  [5-points]
    Factors influencing the demand for short-haul and long-haul aircrafts include prices, passenger income levels, competition, and customers’ tastes and preferences. These factors are equal to both long-haul and short-haul aircrafts.
  • ATE:  Explain derived demand and direct demand.  Which of these two is the airline industry most characterized by?  Please explain your answer.  [5-points]
    Direct demand is where the demand for output of products does not depend on the demand for other products whereas derived demand refers to when the demand for outputs is linked to the demand for another output. The airline industry is characterized by derived demand since transport is considered a factor of production.
  • ATE: with the recent decreases in Oil prices, what effects would this have on the aviation and air transportation industry?  [5-points]
    The decrease in oil prices will mean that air transportation costs reduce, thereby increasing the supply of air transport services.