Products, Services and prices in the Free Market Essay

August 14, 2017 General Studies

Price snap of demand is a term normally used in economic and concern surveies to intend an snap that measures the grade of the relationship between fluctuation in measure demanded of a good and fluctuation in its monetary value. In most instances normal goods and most inferior goods monetary value beads consequences into addition in the measure demanded. But goods for which there is no replacement are by and large inelastic. This type of demand is comparatively associated with necessities. However. merchandises with a high snap in most instances have many replacements. ( Karl 1999 )

In the instance of Southern Airline. there are assorted air hoses that operate through the same portion of America. Therefore there are a figure of replacements in the country which means that the demand is elastic. If for illustration the company bear down excessively much on its tickets. people are likely to travel to the other signifiers of air travel in Texas. ( Karl 1999 )

Demand for giffen goods or Veblen goods are considered to increase with addition in monetary value. First category air travel happened to rank in the categorization of giffen goods ( goods whose demand addition with addition in monetary value ) so I would advice you to increases the monetary value of the first category tickets but non for the ordinary category transitions. ( Henderson 2004 )

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On the other manus. there is a instance of monetary value rising prices. during an economic bubble. consumer perceptual experience have a important function in explicating products’ demand in some classs. If for illustration you increase your monetary values. clients may come on the perceptual experience that you are bear downing higher because you are offering higher quality services. This in return will hold a positive impact on the company’s gross. ( Karl 1999 )

Price snap demand is affected by a figure of factors but all of them are under one umbrella the ‘choice’ . By pick we mean the power of pick the consumers of a certain good holds to give up the ingestion of the said good. All this is due to consumer’s ‘perceived value’ like first category those clients value their prestigiousness and will non make without it. So I would advice you to increase the 1stcategory ticket monetary values. Besides. on the other categories based on the rule of monetary value rising prices during an economic bubble you can increase the monetary value believing that people will comprehend that there is choice betterment and respond positively thereby increasing the overall gross. ( Sowell 2004 )

Air travel is a basic necessity to some long distance travellers in America. This means that if monetary value is increased they will likely non alter their manner of conveyance. Thus alteration in monetary value is non likely to impact much the alteration in demand since the snap of the merchandise is non excessively elastic. I would advice you to increase the monetary value since you offer good quality service. Air travel to some people is accustomed and they will still come. most of the people who use air travel have good income and therefore they will non be affected or strain financially and therefore recognize some reduced gross. ( Karl 1999 )

Income Elasticity of demand evaluates the reactivity of measure demanded of good to the fluctuation in the income of people demanding this good. It is the ratio of the per centum alteration in measure demanded to the per centum alteration in income. ( Henderson 2004 )

In this instance. the 3rd category travellers who are the bulk have a negative income snap of demand. This means that an addition in income will take to a lessening in the measure demanded for some specific less epicurean category. Therefore if customer’s income is increased by 10 % . they will be given to travel to the higher esteemed categories. Besides. more people who would wish to go by air and happen it economically striving if their income is raised. they would go by air that means that addition in consumer income by 10 % may ensue to increase in the demand by same proportion. A zero income snap of demand would happen in the esteemed category travel. This means that addition in their income will non hold an consequence on their demand. ( Karl 1999 )


Southwest Airlines was originally started to function three metropoliss in Texas as Air Southwest back in 1967 by Rolling King and Herb Kelleher. These paths were Dallas. Houston. and San Antonio. It is the largest air hose that operates within California. with 694 flights entire in the province. 370 of which are intra-California.

Presently. Southwest operates in 64 metropoliss in 32 provinces. with more than 3. 300 flights a twenty-four hours. It has notably big operations in certain airdromes. These airdromes operate non-stop flights to more than half of the Southwest system. It besides uses other secondary airdromes which have lower costs which may or may non be. more convenient to travellers than the major airdromes to the same finishs such as Midway Airport in Chicago and Fort Lauderdale-Hollywood International Airport.

The company offers both the local and international air hose services. An norm of three quarters of Southwest riders is local riders. intending merely a one-fourth of all riders are linking riders. This is comparatively higher than most air hoses. where travellers frequently connect in hub metropoliss.

Southwest Airlines has besides set a end to code portion with ATA and get down international codeshare services or ticket for international flights in 2009. Finishs that may be served by this include Canada. the Caribbean. and Mexico

Southwest Airlines besides makes exclusions to the doctrine of functioning those secondary airdromes by winging into some larger airdromes in major metropoliss. such as Phoenix Sky Harbor International Airport.

Success and profitableness of this company led to a common tendency named after the company as The Southwest Effect. The monetary value in the company may drop when a low menu bearer or any aggressive and advanced company comes into market. They believe that a bead in monetary value non merely doubles the clients but may quadruple them.

Southwest has a plan to fudge fuel monetary values. It purchases fuel options old ages in progress so to smooth out fuel costs fluctuations. This helps the company to take market conditions advantage for illustration in 2000. It besides hopes to take advantage of historically low monetary values of jet.

Harmonizing to its 2006 Annual Report. fuel monetary values have been fluctuating over the past old ages:

2004 – 82. 8 cents/gallon

2005 – 103. 3 cents/gallon

2006 – 153. 0 cents/gallon World Wide Web. sou’-west. com/about us

In decision. it can be said that monetary value can be increased in the instance of the Southwest Airline under conventional economic premises of consumer reason: that people will look for the quality non the pricing. Besides. company has a comparatively inelastic demand and the monetary values will non impact the clients. So it is advisable to raise the monetary value besides because the ‘good’ in this instance is giffen good.


Karl E. & A ; Ray C. ( 1999 ) .Principles of Economicss( 5th ed. ) . Prentice-Hall Publishers

Henderson. H ( 2004 ) .Supply and Demand. Kessinger Publishers

Sowell T ( 2004 ) .Basic Economicss: A Citizen’s Guide to the EconomyBasic Book Publishers

Smith A ( 1982 ) .The Wealth of Nations. Penguine Classicss

World Wide Web. sou’-west. com/about us


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