The paper 'Macroeconomics: a Modern Approach' is a perfect example of a Macro and Microeconomics Assignment. The aggregate demand curve indicates the amount quantity of real output (real GDP) the buyers are willing to purchase collectively at the prevailing price level (Arnold 2011). The correlation between the price level and real GDP is inverse (Chauhan 2009). This implies that when the price increases, it results in a decrease in the demanded quantity of the real GDP. Similarly, when the price level falls, the quantity of the real GDP demanded rises. Therefore, if the price for oil increases the level of the quantity of the real GDP demanded falls (Dwivedi 2006).
Consequently, the price of the flight in the international airline market would rise, and the quantity decrease. To reduce the excess supply, firms reduce prices and the level of real GDP demanded. This will be possible because the inventory will compel the sellers to lower the prices; reduced prices will offer fewer incentives to enhance production. However, the consumers will have the tendency of purchasing more units of output at lower prices.
If the price level rises more rapidly than expected in the short-run, this implies that the rise in the price level surpasses that of the wage rate and hence they are compelled to pay for the wages since they are usually fixed on the contract (Fisher 2009). Part bA monopoly exists in the market when one firm is the sole producer of goods or services in the markets. Therefore, an increase in oil prices will lead to rising in prices of a ticket for Qantas and an increase in prices for flight.
Assuming the firm is a monopoly, it has the power to determine the prices in the market as opposed to the competitive market where the price is established through the forces of demand and supply in the market (Wisner, Tan & Leong 2011). Additionally, a monopolist would strive to make abnormal profits; therefore increase in price for oil implies that the cost of the firm has increased (Beaverstock 2010). Thus to avoid operating on losses Qantas will hike the ticket, as well as the flight prices.
Similarly, a monopolist has market power, implying that they have the ability to raise price above the marginal cost in order to make excess profits.
Arnold, R. A. (2011). Macroeconomics. Mason, OH: South-Western/Cengage Learning.
Barro, R. J. (2008). Macroeconomics: A modern approach. Mason: Thomson.
Beaverstock, J. V. (2010). International business travel in the global economy. Farnham, Surrey: Ashgate.
Boyes, W. J., & Melvin, M. (2013). Economics. Australia: Cengage Learning South-Western.
Chauhan, S. P. S. (2009). Microeconomics: An advanced treatise. New Delhi: PHI Learning.
Dwivedi, D. N. (2006). Microeconomics: Theory and applications. New Delhi: Pearson Education.
Fisher, T. (2009). Firms, Markets and Business Management Economics II. Sydney: University of Sydney
Grant, S., & Vidler, C. (2000). Economics in context. Oxford: Heinemann
Knoop, T. A. (2010). Recessions and depressions: Understanding business cycles. Santa Barbara, Calif: Praeger.
Landsburg, S. E. (2011). Price theory and applications. Australia: South-Western/Cengage Learning.
Morrell, P. S. (2013). Airline finance. Farnham, Surrey, England: Ashgate.
Rittenberg, L., Rittenberg, Libby., Tregarthen, Timothy D., & Flatworld Knowledge. (2008). Principles of microeconomics. Nyak, New York: Flatworld Knowledge.
Ryan, P. 2014, 'Qantas: what's the future for the flying kangaroo?', ABC News, 16 March, viewed 11 May 2014
Wisner, J. D., Tan, K.-C., & Leong, G. K. (2011). Principles of supply chain management: A balanced approach. Mason, OH: South-Western