In 2016 the price of oil fell to a 12-year low. For drivers, the cost of driving fell significantly as gasoline prices plunged. For the airline industry, the cost of operation also fell significantly because jet fuel is a major expense. a. Draw a supply and demand diagram that illustrates the effect of a fall in the prtce of jet fuel on the sup- ply of air travel.
b. Draw a supply and demand diagram that illustrates the effect of a fall in the price of oil on the demand for air travel. (Hint: think about this in terms of the substitutes for air travel, like driving.)
c. Put the diagrams from parts a and b together. What happens to the equilibrium price and quantity of air travel? Despite the fall in the cost of driving, many more Americans chose to fly to their destinations during 2014 to 2016, as incomes rose and people splurged on vacations that had been postponed during the Great Recession.
d. Using your results from part c, modify your dia- gram to illustrate an outcome in which the equilib- rium price of air travel rises as people take more! vacations by air.

Suppose a firm faces a fixed price of output, 푝푝= 1200. the firm hires workers from a union at a daily wage, 푤푤, to produce output according to the production function 푞푞= 2퐸퐸12. there are 225 workers in the union. any union worker who does not work for this firm is guaranteed to find nonunion employment at a wage of $96 per day. a.what is the firm’s labor demand function? b.if the firm is allowed to choose 푤푤, but then the union decides how many workers to provide (up to 225) at that wage, what wage will the firm set? how many workers will the union provide? what is the firm’s output and profit? what is the total income of the 225 union workers? c.now suppose that the union sets the wage, but the firm decides how many workers to hire at that wage (up to 225). what wage will the union set to maximize the total income of all 225 workers? how many workers will the firm hire? what is the firm’s output and profit? what is the total income of the 225 union workers? [hint: to maximize total income of union, take the first order condition with respect to w and set equal to 0.]