Proponents of airline industry deregulation argued that airl

Proponents of airline industry deregulation argued that airlines should be allowed to set fares as high or low as they please. Though they acknowledged that this policy would undoubtedly lead to higher fares in the short term, they predicted that the higher revenues generated would allow the existing airlines to upgrade and even expand their services. They also predicted that attractive profit margins would possibly lead to the formation of new airlines. Simple rules of supply and demand, they said, would mean that an expanded industry would then have to compete more vigorously for passengers to fill seats, and fares would, thus, inevitably decline.

The proponents of airline deregulation assumed which of the following to be true?
AAirlines reinvest all profits by upgrading services and do not spend them in other ways, such as dividend payments.
BOnly preexisting airlines would profit significantly from market deregulation.
C A free airline market will inevitably lead to a price-setting system based on a proportion of revenues to routes flown.
D An increase in the number of seats available in the airline industry would necessarily lead to an increased demand for those seats.
E The increase in the number of seats available in the airline industry would exceed the number of new passengers shopping for seats in the same period.


Hey Guys,

Can you please help me solve this question. Please answer with a proper and detailed explanation. I got this question from Princeton Review online drills and cannot make any sense of their explanation.

Thanks a ton!!!