There are generally twelve principles of economics. The explanation given below relates those principles to the given case.
- First: P Company fulfills the needs of consumers who are willing to make a choice between quality and convenience to acquire lower prices.
- Second: The real cost of vacant airline seat or vacant hotel room is the income that they would have received from its use in the next best alternative.
- Third: The amount paid for tickets depends on how much inconvenience and time is saved by buying it for higher prices. Similarly, the amount paid for advance ticket depends on the variation in price and cancellation policy.
- Fourth: P Company is popular as people exploit the opportunities of getting hotels, flights, and many other benefits at lower cost.
- Fifth: In Europe, gains from P Company network are more because it involves trade of goods and services provided to the people.
- Sixth: O Company and E Company provided many incentives to the travelers to use their services. Hence, market of online services will move towards equilibrium.
- Seventh: P Company used the resources like hotel rooms and airline seats in a very efficient manner. It is not wise to keep vacant seats and room, if someone wants them at going price.
- Eighth: Vacant seats and room lead to inefficiency. So, P Company made its product popular and familiar through online services.
- Ninth: A brief slump in the airline industry was managed by the government, as government intervention helped the industry by avoiding loss of jobs of many supporting staffs and company failure.
- Tenth: Due to the attack of September 2001, people stopped spending on airline tickets. As a result, the salary of airline workers reduced.
- Eleventh: The whole economy was suffering from depression after the attack of 2001 because the production was greater than the spending in the economy.
- Twelfth: Congress provided aid of $15 billion to stabilize the airline industry and prevented major recession in the industry.
Thus, the explanation of the twelve principles of economics in relation to the case have been stated above.