Air Traffic and Terminal Passengers in the UK Airports - Assignment Example

? ANALYSIS OF BUSINESS ENVIRONMENT By Introduction This paper is split into two parts: A and B. Part A is a response to questions touching on the dynamics of supply and demand curves as a result of variation in each of the factors. Part B is an analysis of the correlation between the number of air traffic and terminal passengers in the UK airports. Part A 1. Factors that influence the demand for cars Demand is the capability of a buyer to purchase a certain good. Some of the factors that influence demand of cars include: Advertising techniques If a company advertises its cars properly, the demand will certainly be higher as opposed to if it does not. Some of the available techniques of promotion include using the print media and other media such as radio and TV. This is likely to catch the attention of many potential buyers. This will tend to increase demand of cars. The price of a car Affordability of cars will most certainly increase their demand. However, if the prices are not friendly, demand of cars will be less. This is the prime reason why a company that sells cars should fix the prices skilfully so as not to affect the sales (Frank, 2006, p. 57). Financing options A population found in a country where access to loans is easier will find it easier to buy a car than those who cannot access a loan. Banks and other financial institutions give loans to people who are employed or are doing businesses with returns that can pay off the loan. The income of the buyer Those buyers that earn a lot are able to buy more than one car. Those who earn little are not even able to afford a car. This is the reason why it is important to start up a car selling business in places where people have good income. In such a place, demand will certainly be higher. New offerings With the introduction of a new model in the market, the demand of this car is usually higher. People tend to buy new models due to changes in the make. They may love the new colour, shape and speed of the new car and as such, they will be influenced to buy. Tastes and preferences If the customers change their taste and preference towards a particular type of car, its demand will most certainly go down. However, if the tastes and preferences of the consumer are in line with the available type of cars, then this will make demand higher. Economic conditions The most influential economic conditions include inflation and balance of payments. When there is inflation, the prices of goods and services tend to go high. In this case, consumers will pay higher for basic commodities than was the case initially. In this case, therefore, consumers’ ability to purchase is strained. They are not able to buy luxuries such as cars, hence their demand goes down. On the contrary, if the prevailing economic conditions are favourable, people will have money to spend, hence the demand for luxuries such as cars will be higher (Bade and Parkin, 2001, p. 43). 2. What product or service might have a highly positive cross elasticity of demand with the market for cars? Describe its impact on the market for cars. Cross elasticity of demand measures the effect of the demand of one good because of the change in the price of another good. The elasticity is measured because of the change in price of one good and how this will affect another commodity demand. The two goods are either compliments or substitutes. When the cross elasticity of demand is positive, it shows that the goods are substitutes. When it is negative, the two products are complements. In the market for cars, motorcycles are the products with a highly positive cross elasticity of demand. Other substitutes are the public transport such as busses and trains. Many people are opting to buy motorcycles in place for cars due to the effective nature of motorcycles as compared to cars. Customers in a situation where substitutes have such a positive cross elasticity of demand, opt for the product with the highest advantage. In the market of cars, the main reason why people are moving to substitutes is due to the high acquisition and running costs of the cars. The substitute, which is motorcycles, has very low costs of acquisition and running. The market of cars is affected because the price and running costs of motorcycles are low. In the market, a change in the price of motorcycles will make the quantity demanded for cars to reduce. The increase in the price of cars will cause an increase in the quantity of motorcycles demanded. The cross elasticity of demand for motorcycles is positive because the change in price of motorcycles will make the demand for cars to reduce. 3. Describe and show the effects on equilibrium market price and output in the weekly market for newspapers of the following: (a) a decrease in printing costs A decrease in printing cost is likely to increase the number of newspaper being supplied to the market. This shifts the supply curve rightwards, resulting in a decrease in equilibrium price to P2 (Eaton et al., 2002, p. 72). (b) An increase in consumer income Increase in consumer income implies that the frequent buyers of newspaper have a higher purchasing power than in the earlier days. This will result in a shift towards the right in the demand curve, thus raising the equilibrium price. In the graph below, P1 is the new equilibrium price. (c) A substantial reduction in the price of iPads The reduction in iPad prices implies that the newspaper readers will acquire the new iPads and use them to access information which would otherwise be found in newspapers. This means that the demand for newspapers will shift leftwards, resulting in a decrease in equilibrium market prices. In the graph below, P2 is the new equilibrium price (Welch and Welch, 2009, p. 81). 4. Why are cigarettes taxed so heavily? Explain using demand curve analysis. In the current market, the elasticity curve is the degree to which the supply and demand curve reacts to the change in prices. Some products such as cigarettes are more essential to consumers than others, which brings the variation of the elasticity curve. Cigarettes are considered necessities by smokers and hence, they are more insensitive to changes in prices. Consumers would continue buying cigarettes despite the price increase. Analysis shows that extremely few people will quit cigarette smoking just because of the increase in cigarettes prices. When analysing the demand and supply activities of cigarettes and their high taxation, a lot has to be said. Cigarettes are addictive and hence, have an inelastic demand. This means that even with the increase of taxes on cigarettes, the created additional revenue by the taxman will still be greater than the loss caused by people who might choose to quit smoking due to the increase in tax. The taxman will always be the winner despite the high cost of cigarettes. A cigarette smoker will find it extremely hard to stop smoking and hence, will have to comply with the increase in tax by the taxman. Figure 1 Graphical Representation of Inelastic demand Cigarette smoking is considered harmful to human health, and the government is discouraging its consumption. Cigarette smoking is attributed to a large number of health complications and diseases. The government uses a lot of funds and facilities in trying to cure people against smoking related illnesses. Hence, the government has to try its best in discouraging its consumption for the best of its citizens. The main way of discouraging cigarette consumption is by imposing high taxes, which also discourages those who had the intentions of joining cigarette smoking. According to the Health Commissioner in United States, tobacco is the leading cause of death that can be prevented, and increasing tobacco prices will be the best action to reduce its use. Heavy taxes on cigarettes are also meant to cover the cost of externalities or better known as the polluter pay principle. The polluter pay principle is placed on products damaging the environment while seeking to reduce or stop the production or consumption of the product. The increase in high taxes will enable achievement of government goals at the lowest cost and most efficient cost possible. When environmental costs are internalised into prices, it helps move the changes in structural economics to a more efficient and sustainable economy. A lot of revenue is raised from cigarettes and this helps in reducing the level of taxes on other products, hence reducing distortion in the economy (Henderson, 2011, p. 34). Environmental tax is aimed at increasing the private marginal cost of firms to equate with the social marginal cost curve. By this, a socially efficient level of output is archived. Cigarettes produce a lot of revenue, and the government is extremely much aware that no reduction in revenue would occur by increasing taxes. Governments can be able to meet their future revenue expectations by increasing the cigarettes taxes (Henderson, 2011, p. 52). Also for better resource allocation, the government requires a lot of funds and hence, it manipulates the supply and demand curve for cigarettes and gets more revenues from it and reducing cigarettes’ consumption. Using the supply and demand curve analysis of cigarettes, many governments have increased and will continue increasing the taxes on cigarettes. This is to archive their intended goals and also discourage the use of cigarettes. Many governments are trying to get their messages across to its citizens to stop smoking and reduce the rate of health complications caused by cigarette smoking. Part B The Aviation Industry: Annual Data 1) Correlation coefficient between ‘air transport movements’ and ‘terminal passengers’. From Excel computation: 2) Derive a scatter graph to show the relationship between the two variables: terminal passengers and air transport movements (Appendix One). 3) Coefficient of determination and the regression equation linking ‘air transport movements’ and ‘terminal passengers’ 4) Number of passengers expected when the number of air traffic movements is 2 million a year and 3 million a year (Appendix Two). y = 132.2x – 75095 2 million air traffic movements a year 3 million air traffic movements a year 5) Identify any outliers Outliers are the figures corresponding to 1981, 1991, 2009, and 2010 years. Discussion The data represents the number of air transport movements and the corresponding number of passengers as measured in the airports. The air transport movements comprise all landings and takeoffs while the numbers of passengers consist of arrivals and takeoffs. The data captures the number of air transport and passengers from 1980 to 2010 at the United Kingdom Airports. Main movements over time of air transport movements and terminal passengers The changes in the annual number of landings and arrivals in the UK airports have been increasing in many occasions since 1980 according to the Traffic at UK Airports data. There are years when the number of air transport movements decline from the previous years as evident in 1981, 1991, 2002, 2009, and 2010. The numbers of air transport movement in these periods were lower than those of preceding years. Otherwise, the other years have seen a steady increase in the number of air transport from 954 thousands in 1980 to 2002 in 2010. On the other hand, the number of passengers in the airport has been rising since 1980 except for 1981, 1991, 2009, and 2010 when the passenger population dropped. Overall comparisons indicate an increase in the number of passengers in the airport with 1981 registering 57,823 thousands and 210,656 thousands in 2010. Scatter graph linking air traffic movements and terminal passengers The scatter graph in Appendix One shows the relationship between the air traffic movements and corresponding terminal passengers. The graph points out a relationship between the two variables with variation in one aspect leading to an increase in the other feature in nearly similar proportions. In other words, as the number of landings and takeoffs increases, so does the number of arrivals and departures. Since the air traffic movements affect the number of terminal passengers directly, it is an independent variable while the number of terminal passengers is a dependent variable depending on the movement in the number of landings and takeoffs. Correlation coefficient and the coefficient of determination The correlation coefficient and the coefficient of determination are measures of the relationship between two variables indicating the extent to which movements in an independent variable leads to changes in the dependent one. The correlation coefficient of this data is 0.994 while the coefficient of determination is 0.988. This implies that for every increase in air traffic movements, there is a corresponding increase in the number of terminal passengers in an almost equal proportion as the number is tending towards one. The sign of the correlation coefficient is positive, indicating a direct proportionality between air traffic movements and terminal passengers. The equation of the regression line The equation of the regression line is a linear one indicating a direct proportionality between the number of air traffic movements and passengers. From the equation, x represents the number of air traffic movements while y represents the resultant number of passengers in the airports. The rate of change in the number of passengers per increase in air traffic movement is the slope of the line and is equal to 132.2. Predictions The predictions for 2,000 and 3,000 thousands air traffic movements assume that the relationship established in the regression line is true at all times. The prediction follows the trend with its accuracy being manifested in the range of the figures fall. Comment on the outliers found The outliers in this analysis are seen as the years when the number of passengers deviated from the expected increase as per equation. The scatter graph shows some points that are located slightly further than others, representing anomaly of 1981, 1991, 2002, 2009, and 2010 years. References Bade, R. and Parkin, M., 2001. Foundations of microeconomics. Boston, MA: Addison- Wesley. Eaton, B. C., Eaton, D. F. and Allen, D. W., 2002. Microeconomics. Toronto, Ont.: Prentice Hall. Frank, R. A., 2006. Microeconomics and behavior. New York: McGraw-Hill. Henderson, J. W., 2011. Health economics and policy (with economic applications). Chula Vista, CA: South-Western College. Welch, P. J. and Welch, G. F., 2009. Economics: theory and practice. New York: John Wiley & Sons, Inc. Appendix One Appendix Two Read More