Practise classifying land, labour, capital and enterprise and analysing how skills, technology, factor rewards, specialisation and entrepreneurial decisions affect production.
The air transport market in India
Over the past 20 years or so, global air transport markets have become more competitive. This is especially the case in the United States (US), the European Union (EU) and, most recently, in Asia. Governments have sought to provide opportunities for new firms, invariably 'low-cost carriers' (budget airlines), to open new routes and compete with established airline operators, often in domestic markets.
The situation in India is typical but only to a certain extent. The country has two established airline operators with extensive international as well as domestic service networks. They now face increasing competition from a number of low-cost carriers who operate services within India.
Consumers have benefitted from these changes. As well as opening new routes, the increased competition has seen all airline operators offering cheaper prices. At the same time, the established airline operators have had to reduce costs to remain competitive. Also, demand has increased for leisure travel as well as business travel.
The Indian air transport market still has some restrictions imposed by the Indian government. An important restriction is the ' 5 / 20 rule'. This stipulates that Indian-owned airline operators must have a minimum number of aircraft (20) and have been in business for a minimum of 5 years, before they can operate international services.
Opponents to the 5/20 rule argue that it seriously discriminates against Indian airline operators by not allowing them to compete in a free market. They further claim that applying the rule is having a negative impact on the Indian economy. Foreign-owned airline operators, which have a 70% share of international passenger traffic to and from India, do not have to meet the 5/20 rule.
Source: Times of India, 27 February 2016 and The Mint, 25 February 2016
Fig. 1.1: Air transport - total number of domestic and international passengers carried by Indian-owned airline operators, 1971-2014
Name and give an example of each of two factors of production that are required by airline operators.
A country increases its spending on education and training. It pays for this by reducing unemployment benefit payments and increasing taxes on imports of machinery.
What is the likely effect of these changes?
human capital
physical capital
decreases
decreases
decreases
increases
increases
decreases
increases
increases
The factors of production earn different rewards.
What identifies the correct economic term for these rewards?
capital - surpluses
enterprise - dividends
labour - interest
land - rents