CAIE IGCSE Economics 3.7.1 Competitive markets

Read the source material carefully before answering Question 1.

Istanbul is Turkey's largest city by population size. In 2014, its population was approximately 14 times more than it was in 1955. This could be due to increased migration from rural areas to cities and improved healthcare. Istanbul also has the highest output per head of all regions in Turkey.

Good transport links have contributed to Istanbul's economic growth. In addition to good land transport, Istanbul is also home to the $14^{\text {th }}$ largest airport in the world, measured by passenger numbers. From Istanbul, there is access to a market of $\$ 24$ trillion with 1.5 billion people within a flight time of 4 hours. In addition to affordable international air travel to and from Istanbul, domestic air travel is also very affordable. This is most likely due to economies of scale. There is also a high level of competition in this industry which influences prices and quality of service. The growth in transport industries, along with growth of financial services, has contributed greatly to Istanbul's growth rate as shown in Table 1.1.

Foreign investment is flowing into Istanbul. Multinational companies (MNCs) are finding Istanbul an attractive city to invest in because of the low cost of living. These MNCs are affecting employment, the level of technology and wages in Istanbul.

However, there is worry that such confidence in the Turkish economy may not last. Many companies have depended on borrowing for expansion. Increased interest rates around the world may make it harder for such companies to continue borrowing and also to attract new customers. If there are greater worries about safety for tourists in Turkey in the future, this may cause fewer people to book flights to Turkey.

Discuss whether or not competition is beneficial for airlines.