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9. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Oceans Hotel and Casino in Atlantic City, New Jersey. To help the hotel management better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These demand 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 Pittsburgh (PIT) to Atlantic City (ACY) Initial Value $50,000 per year $100 per roundtrip

9. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Oceans Hotel and Casino in Atlantic City, New Jersey. To help the hotel management better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These demand 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 Pittsburgh (PIT) to Atlantic City (ACY) Initial Value $50,000 per year $100 per roundtrip

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Options for selection: 1. falls or rises 2. negative or positive 3. normal good or inferior good 4. falls or rises 5. negative or postive 6. substitutes or complements 7. increase or decrease 8. elastic or inelastic


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9. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Oceans Hotel and Casino in Atlantic City, New Jersey. To help the hotel management better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These demand 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 Pittsburgh (PIT) to Atlantic City (ACY) Room rate at the Meadows Hotel and Casino, which is near the Oceans Initial Value $50,000 per year $100 per roundtrip $250 per night
Transcribed Image Text:9. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Oceans Hotel and Casino in Atlantic City, New Jersey. To help the hotel management better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These demand 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 Pittsburgh (PIT) to Atlantic City (ACY) Room rate at the Meadows Hotel and Casino, which is near the Oceans Initial Value $50,000 per year $100 per roundtrip $250 per night
PRICE (Dollars per room) 500 450 400 350 300 250 200 150 100 50 0 Demand I 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hotel rooms) Oceans are Graph Input Tool Market for Oceans's Hotel Rooms Price (Dollars per room) Quantity Demanded (Hotel rooms per night) Demand Factors Average Income (Thousands of dollars) Airfare from PIT to ACY (Dollars per roundtrip) Room Rate at Meadows (Dollars per night) 150 350 50 100 250 For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Oceans is charging $150 per room per night. If average household income increases by 20%, from $50,000 to $60,000 per year, the quantity of rooms demanded ate Oceans rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that i from falls pms at the rises If the price of an airline ticket from PIT to ACY were to increase by 10%, from $100 to $110 roundtrip, while all other demand factors remain at their rooms per night. Because the cross-price Initial values, the quantity of rooms demanded at the Oceans from elasticity of demand is rooms per night to hotel rooms at the Oceans and airline trips between PIT and ACY are Oceans is debating decreasing the price of its rooms to $125 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 Oceans is operating on the portion of its demand curve.
Transcribed Image Text:PRICE (Dollars per room) 500 450 400 350 300 250 200 150 100 50 0 Demand I 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hotel rooms) Oceans are Graph Input Tool Market for Oceans's Hotel Rooms Price (Dollars per room) Quantity Demanded (Hotel rooms per night) Demand Factors Average Income (Thousands of dollars) Airfare from PIT to ACY (Dollars per roundtrip) Room Rate at Meadows (Dollars per night) 150 350 50 100 250 For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Oceans is charging $150 per room per night. If average household income increases by 20%, from $50,000 to $60,000 per year, the quantity of rooms demanded ate Oceans rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that i from falls pms at the rises If the price of an airline ticket from PIT to ACY were to increase by 10%, from $100 to $110 roundtrip, while all other demand factors remain at their rooms per night. Because the cross-price Initial values, the quantity of rooms demanded at the Oceans from elasticity of demand is rooms per night to hotel rooms at the Oceans and airline trips between PIT and ACY are Oceans is debating decreasing the price of its rooms to $125 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 Oceans is operating on the portion of its demand curve.
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