Economics can be use to provide solutions to various questions that relate to different phenomena, issues, and life events. The understanding of how different economic models are applied in real life situations is vital to the exploration of the underlying causes of various events and analysis of the behavior of economic agents. The most intriguing question of interest to me involves the reasons behind variations in airline tickets. The question is why some airline tickets are expensive than others. I decided to choose this question because it involves various economic factors that can be analyzed through a suitable econometric model.
Airfares are determined by various factors such as distance, fuel cost, travel class, airport size, and the time of air ticket purchase among others (Straszheim 262). The question involves the determination of how each of the determinants of the airline ticket affects the airfare as well as how airline companies set their airfares based on these factors. After formulating an econometric model, I established an economic relationship between different determinants of airline tickets and the air fares charged by various companies. The model conforms to theories advanced by different scholars t explain the variations in air tickets. For example, studies on causes of price wars in the aviation sector have revealed that significant variations in the revenue generated by airline companies are attributable to factors such as airport size, the elasticity of demand, business cycles, and lack of government regulations (Levine 393). Thus, the results of the econometric analysis correspond to the postulations of researchers on what causes variations in airfares. However, the factors identified have varying impact on the airline tickets. The econometric analysis revealed that some factors such as distance and cost of fuel are more deterministic than other as their correlation with airfare is high.
Works Cited
Levine, Michael. "Airline competition in deregulated markets: theory, firm strategy, and public policy." Yale J. on Reg. no. 4, 1986, pp. 393-494
Straszheim, Mahlon. "The Determination of Airline Fares and Load Factors: Some Oligopoly Models." Journal of Transport Economics and Policy 1974, pp. 260-273.
