RE: A hypothetical exam essay question

[Cordell . Arthur]

I would guess that demand for air travel is--in the light of events of Sept. 11--quite inelastic.  This is to say that lowering prices would not lead to more ticket sales.  Lowering prices will just lead to lower over all revenues.   arthur cordell -----Original Message----- From: G. Stewart [mailto:[EMAIL PROTECTED]] Sent: Friday, September 28, 2001 11:35 AM To: [EMAIL PROTECTED] Subject: A hypothetical exam essay question Background: (Excerpt from an article forwarded to me today)  From Slate magazine, an article by Steven E. Landsberg subtitled "The airline bailout enriches stockholders at the expense of taxpayers:"  "Let's be clear about what this bailout will do for the flying public: exactly nothing. It won't keep any planes in the air that wouldn't have been there anyway. Airplanes are flown when it's profitable to fly them, and they're not flown when it's not profitable to fly them. Giving cash to the airlines doesn't change the profitability of any given flight, so it doesn't affect any decision about which flights to offer. <snip> So, what does the airline bailout accomplish? One thing and one thing only—it enriches the millions of people who own airline stocks at the expense of the millions of others who don't. And in the process, it undermines the very principles that we uphold and our enemies want to destroy.   Hypothetical exam question:   Is Landsberg right? If so, why are governments not bailing out the airlines by making it less expensive for people to fly? Why is there no vociferous lobby for reducing ticket prices, perhaps through a voucher system temporarily reducing the costs of flying? Wouldn't this be a healthier form of bailout both for the airlines and the public than just giving cash to the airlines? Wouldn't a reduction in ticket prices to the consumer be more likely to maintain jobs and lead to a resumption of normal airline activity? Are resources that might be used against terrorism being needlessly wasted by a straight "bailout" of the airlines? Discuss.   Regards,   Gail