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The travel and tourism industry Extract A Marginal productivity of cabin crew Cabin crew are responsible for loading passengers and providing in-flight meals - Edexcel - A-Level Economics A - Question 6 - 2021 - Paper 1
Question 6
The travel and tourism industry Extract A Marginal productivity of cabin crew Cabin crew are responsible for loading passengers and providing in-flight meals. Unit... show full transcript
Worked Solution & Example Answer:The travel and tourism industry Extract A Marginal productivity of cabin crew Cabin crew are responsible for loading passengers and providing in-flight meals - Edexcel - A-Level Economics A - Question 6 - 2021 - Paper 1
Step 1
Explain the likely impact of diminishing marginal productivity of labour on cabin crew staffing levels. Refer to Extract A in your answer.
Answer
Diminishing marginal productivity occurs when adding an additional factor of production results in smaller increases in output. In the context of cabin crew staffing levels, reducing the number of cabin crew can lead to a decline in service quality and passenger satisfaction. As the workload on existing staff increases, their productivity per individual may decrease, potentially leading to longer wait times for customers and decreased efficiency in managing flight operations. It is crucial for airlines like United Airlines to maintain an optimal number of cabin crew to balance operational costs with service levels.
Step 2
Examine the likely impact of Thomas Cook’s plan to reduce their airline emissions (Extract B), in the context of the social optimum position. Use an appropriate externalities diagram in your answer.
Answer
Thomas Cook’s plan to reduce airline emissions is aimed at addressing the negative externalities associated with environmental pollution. In the context of the social optimum position, where social costs equate with social benefits, this plan would ideally lead to a decrease in the overall carbon footprint from flights. An appropriate externalities diagram would show a downward-sloping demand curve and an upward-sloping supply curve, intersecting at the socially optimal level of output. By reducing their emissions, Thomas Cook aims to achieve a more efficient allocation of resources, benefiting society at large by improving air quality and making travel more sustainable.
Step 3
With reference to Extract C, assess whether Thomas Cook’s failure was caused by the principal-agent problem.
Answer
The principal-agent problem arises when there is a conflict of interest between those who own a company (principals) and those who manage it (agents). In the case of Thomas Cook, the management's decisions to pursue aggressive expansion and risky mergers may not have aligned with the interests of shareholders. The directors' extensive efforts to rescue the company suggest a failure to adequately address the underlying financial troubles, which may stem from misaligned incentives. If the directors were more concerned with short-term gains rather than long-term sustainability, this could have led to poor decision-making that ultimately contributed to the company's downfall.
Step 4
With reference to Extract C, discuss the proposed government subsidy to prevent Thomas Cook from trading its shut-down point.
Answer
The UK government's refusal to provide a £150 million subsidy to Thomas Cook highlights the complex decisions surrounding bailouts. While the subsidy could have helped the company in the short run, it raises ethical questions about the use of taxpayer money. If the government had intervened, it might have temporarily prevented job losses and safeguarded the interests of travelers. However, this approach could set a precedent for future bailouts, potentially leading to moral hazard where companies might engage in risky behavior expecting government support. Thus, the decision not to grant the subsidy reflects a careful consideration of broader economic implications.
Step 5
Explain the implications, provided the decision by Jet2 to increase capacity.
Answer
Jet2's decision to increase capacity can be viewed as a strategic move to capture market share following Thomas Cook's collapse. This shift may result in increased competition in the travel sector, leading to lower prices and more options for consumers. Furthermore, increased capacity can allow Jet2 to accommodate growing demand for holidays, particularly if consumers seek alternative operators. However, this move may come with risks of oversupply, which could drive prices down and affect profitability. Additionally, the focus on expanding capacity raises questions about whether Jet2 can maintain service quality amid rapid growth.