Chapter 5, Problem 11P

To determine

The accompanying diagram shows data from the U.S. Bureau of labor statistics on the average price of an airline ticket in the U.S from 1975 until 1985, adjusted to eliminate the effect of inflation (the general increase in the price of all goods over time). In 1978, the U.S Airline Deregulation Act removed the price floor on airline fares, and it also allowed the airlines greater flexibility to offer routes.

1. Whether the price floor that existed before 1978 was binding or non-binding. Draw a diagram to show the relation.
2. Most economists agree that the average airline ticket price per mile traveled actually fell as a result of the airline deregulation act. How might you reconcile that view with that you see in the diagram.

Concept Introduction:

Price control - It is a measure usually taken up by the government to set minimum or maximum limits of prices so as to make the commodity affordable or to make the producer gain from the sales of it.

Price Celling - the Maximum limit set for the price.

Price floor - the Minimum limit set for the price.