Question

If pilots and flight attendants agree to wage and benefit reductions in the wake of the financial difficulties in the airline industry, what impact would this have on the supply and demand in the market for airline service, assuming no other changes take place in this market?

Answer 1

Salaries are an important input in any industry, including airlines, so a decrease in the cost of inputs should result in a rightward shift of the supply curve, decreasing equilibrium price and total quantity supplied. But this shift in the supply curve will not shift the demand curve, the equilibrium point will change but following the existing demand curve.