0 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hotel rooms) Airfare from JFK to LAS (Dollars per roundtrip) Room Rate at Lucky (Dollars per night) 100 200 For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $200 per room per night. from If average household income increases by 50 %, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Big Winner rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Big Winner are If the price of a room at the Lucky were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Big Winner from rooms per night to rooms per night. Because the cross-price elasticity off demand is , hotel rooms at the Big Winner and hotel rooms at the Lucky are
0 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hotel rooms) Airfare from JFK to LAS (Dollars per roundtrip) Room Rate at Lucky (Dollars per night) 100 200 For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $200 per room per night. from If average household income increases by 50 %, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Big Winner rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Big Winner are If the price of a room at the Lucky were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Big Winner from rooms per night to rooms per night. Because the cross-price elasticity off demand is , hotel rooms at the Big Winner and hotel rooms at the Lucky are
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:50
0
0 50 100 150 200 250 300 350 400 450 500
QUANTITY (Hotel rooms)
Airfare from JFK to
LAS
(Dollars per
roundtrip)
Room Rate at Lucky
(Dollars per night)
100
200
For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $200 per
room per night.
from
If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Big Winner
rooms per night to rooms per night. Therefore, the income elasticity of demand is
, meaning that hotel rooms at the
Big Winner are
If the price of a room at the Lucky were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the
quantity of rooms demanded at the Big Winner
rooms per night. Because the cross-price elasticity of
demand is
from
rooms per night to
hotel rooms at the Big Winner and hotel rooms at the Lucky are
Big Winner is debating decreasing the price of its rooms to $175 per night. Under the initial demand conditions, you can see that this would cause its
total revenue to
Decreasing the price will always have this effect on revenue when Big Winner is operating on the
portion of its demand curve.
Transcribed Image Text:9. Application: Elasticity and hotel rooms
A
The following graph input tool shows the daily demand for hotel rooms at the Big Winner Hotel and Casino in Las Vegas, Nevada. To help the hotel
management better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These dem.
factors, along with the values corresponding to the initial demand curve, are shown in the following table and alongside the graph input tool.
Demand Factor
Average American household income
Roundtrip airfare from New York (JFK) to Las Vegas (LAS)
Room rate at the Lucky Hotel and Casino, which is near the Big Winner
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
(woo
500
450
400
350
Initial Value
$40,000 per year
$100 per roundtrip
$200 per night
Graph Input Tool
Market for Big Winner's Hotel Rooms
Price
(Dollars per room)
Quantity
Demanded
200
116
300
Expert Solution
Step 1: Define elasticity
Demand is the desire backed by a willingness to pay and the ability to pay by an individual. The summation of all individual demand curves is known as market demand. As price increases market demand will decrease and vice versa
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