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Microeconomics issue-airline market - Essay Example

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These fees are charged before the amount is refunded to the consumers. Many airlines, as a result, are earning huge revenues just from…
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Microeconomics issue-airline market
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Download file to see previous pages However, these airlines can justify their imposition of penalties in the terms of microeconomics. These fees, according to a source in the market says has been implemented to discourage people from making irrational booking at the online source of airline. If we link this statement to the lens of microeconomics, we can see that this fee has been imposed to even out or to pay for the social costs of ticket changing or cancelations. Theses social costs may include additional cost for the company to change tickets, cancel booking of each tickets etc. Furthermore, as a result of ticket cancellations, it may happen that many planes of the company would operate below their capacity and hence incur social costs like additional fuel, additional clerical costs to change or cancel the tickets, some people who will be in need to travel urgently will be denied a ticket because company may be assuming that it has sold all the tickets and at the last minute they will find out that some of the passengers have either returned or changed their tickets. This is a social cost to the entire society and thus higher prices imposed through these penalties are going to reduce irrational buying and reduce the quantity of tickets bought and hence reduce the societal costs, which are discussed above.
Another article also makes a good assumption that since these costs are incurred for the benefits of the society they should be used to counter the life-threatening diseases that are prevalent in the society. A United Nations program has raised around $1.2 billion from a small fee that was added to airline fares. The program was that passengers were asked to contribute voluntarily towards the programme by adding a small amount to their total ticket fare. This program was a success and raised huge amount of funds for the United Nations. However, if this program would have forcefully increased the ticket prices, than this would have been disastrous for the airline ...Download file to see next pagesRead More
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