In the peak season and holiday period, the price tag on airline ticket will raise and demand for the same is high and the airlines are willing to supply more travelers by operating more frequent flights.
Contraction of Supply
The contraction of supply happens in the off-peak season of the year where most people are not willing to travel. The demand for the travel ticket is low and the tourism and travel companies are forced to reduce the rates of air tickets. So, when you can find drop in price and quantity demanded, the way to obtain the merchandise or services are contracted.
Shifts in the Supply Curve
If the supply curve shifts to the right (from S1 to S2) this can be an upsurge in supply; more is provided for sale at each price. When the supply curve moves inwards from S1 to S3, there's a decrease in supply meaning that less will be supplied at each price.
Factors that triggers the Supply of the Quantity
The price that your producer can buy for the product
The prices of the other goods
The costs of producing the product, which will, subsequently, depend upon the wider environment, such as labor costs, tax rates etc.
Changes in technology may decrease the costs of production and stimulate a higher level of supply to the market
Seasonal variations or changes in climate - Producers of traditionally seasonal products will produce goods in anticipation of increase demand.
Price
The price of product plays major role in way to obtain any product or services. If demand of any product is more in market then supplier increases the price of product to get more profit but if demand is less of product then he have to diminish the price in which to stay the marketplace.
Price of the other goods
The price of the other products will affect the supply, for example the air travel supply variety of customers use flights will reduce whenever there are other modes of travel available cheaper than the flight tickets
For an instance there are coaches open to France, this might reduce the air travel when the purchase price is comparatively lesser than mid-air tickets
The costs of producing the product
The costs of producing the product or services can cause the way to obtain the service.
Lower costs of production mean that a business can supply more at each price.
The hike in the fuel price, airport charges and the federal government taxes will improve the production costs of the airline industry. If the cost increases the price of the products or services increase.
If the expenses of production increase a rise in the price tag on recycleables and taxes, then businesses cannot supply at the same price which will cause an inward shift of the supply curve.
Changes in production technology
The technology development can influence the supply of the merchandise or services. The technological changes can reduce the process cost and the process will be more efficient.
For Example in the airline industry
The technology and software used to consider on-line bookings, pre-arrival check-in process, and e-ticketing are the advancement for the airline industry.
Changes in climate
The effect of climatic conditions can exert a great influence on market supply. Unfavorable weather conditions like snowfall, poor visibility and other natural calamities like ash clouds from volcano will lead decrease in supply.
Price Elasticity of Supply (PES)
Definition of price elasticity of supply (PES)
A measure of responsiveness of quantity supplied of product X to a big change in its own price
The formula for price elasticity of supply is:
PES = % change in quantity supplied of X
% change in price of X
Pes > 1, then supply is price elastic
Pes < 1, then supply is price inelastic
Pes = 0, supply is flawlessly inelastic
Pes = infinity, supply is properly elastic following a change in demand
PES will be greater (more elastic)
The more mobile are factors of production
The longer enough time period
The less risk-averse the producer
The fewer the natural constraints on production.
Graphical Illustation
(Adapted from John Tribe (2004), The Economics of Leisure and Tourism)
If supply is elastic, producers can increase output without a rise in cost or a period delay
If supply is inelastic, businesses find it hard to change production in confirmed time frame.
Factors Affecting Price Elasticity of Supply
The following are the primary factors which influence the price elasticity of supply:
Time Period
Availability of stocks
Flexibility of capacity/ Resource Mobility
Time period
Generally the longer the time period allowed, the simpler it is made for the supply to be changed.
Supply is more price elastic - longer time period allowed
For example, when there is a sudden upsurge in demand for flights from Edinburg to London due to a coach or rail strike, airlines will not be able to provide more supply at that given time.
The sustained airlines can meet up with the quantity demanded by leasing extra planes or transferring planes from less used routes to increase supply in a brief run.
In the long term, new planes can be bought to meet up with the increase in supply.
Availability of Stocks
In the manufacturing industry, the availability of stocks of goods reaches their warehouse which permits supply to become more flexible and more elastic.
In the hospitality and tourism industry, almost all of the merchandise or services tend to be perishable which cannot stored like rooms, air tickets, customer service. The supply is inelastic in the short run.
Spare capacity
The existence of spare capacity either in conditions of service capacity or manufacturing capacity will make supply more elastic.
For example
The airlines that contain spare aircraft designed for deployment when the way to obtain its services increases.
Flexibility of capacity/ Resource Mobility
Flexibility of capacity means that resources can certainly be shifted from provision of one good or service to some other.
For example
Flexibility of the staff is also an integral factor where in many organizations train staff to be multi-skilled to enable those to shift in one task to another when short-term requirement arise. The supply could be more elastic.
In other hand the supply of specialist products require the utilization of specialist skills or machines. The pilot training needs longer period which can make the way to obtain flights inelastic in short run.
