Tuesday, February 25, 2014

Removing Airfare Subsidies May Increase Airfares

The Economist reports that European policy makers are thinking about reducing some airfare subsidies.  Note that the article states that this will increase prices to those flying, reduce the surplus to airlines and reduce the welfare loss to European taxpayers, which is exactly what the demand and supply model would predict with a removal of a subsidy.

What you may also be wondering is why are all those airports in Europe government owned?  Think about this when we talk about the distinction between private and public goods.

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