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Question
In order to encourage tourism in Goa, Government of India suggests to Indian Airlines to reduce air fare to Goa from four major cities - Chennai, Kolkata, Mumbai and New Delhi. If the Indian Airlines reduces the air fare to Goa, how will this affect the market demand curve for air travel to Goa?
Solution
If Indian Airlines reduces the air fare to Goa as suggested by the Government of India, this will result in a downward movement along the same demand curve, leading to an expansion of demand for air travel to Goa.
- Downward Movement Along the Demand Curve: The demand curve for air travel to Goa is typically downward sloping, which reflects the inverse relationship between price and quantity demanded. When the price (air fare) decreases, the quantity demanded increases, resulting in a movement downward along the existing demand curve.
- Expansion of Demand: An expansion of demand occurs when a decrease in price leads to an increase in the quantity demanded. In this scenario, as the airfare to Goa decreases, more people will likely choose to travel to Goa, either because it has become more affordable or because they perceive greater value at the lower price. This increase in quantity demanded is referred to as an expansion of demand.
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