Assume that due to a decrease in demand, the average domestic airline fare decreased from $375 in
Question:
Assume that due to a decrease in demand, the average domestic airline fare decreased from $375 in the third quarter of 2019 to $360 in the fourth quarter of the same year, a decrease of $15. The number of passenger tickets sold in the third quarter was 185 million, and it was 175 million in the fourth quarter. Over the same period, the airlines’ costs remained roughly the same: the price of jet fuel averaged around $2 per gallon in both quarters, and airline pilots’ salaries remained roughly the same, averaging $117,000 per year in 2019.
Using this information, determine precisely how much producer surplus has decreased as a result of the $15 decrease in the average fare. If you cannot be precise, determine whether it will be less than, or more than, a specific amount?
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