If average household income increases by 10%, from $50,000 to $55,000 per year, the quantity of rooms demanded at the Peacock (falls, rises) from rooms _____ per night to _____rooms per night. Therefore, the income elasticity of demand is (negative, positive) , meaning that hotel rooms at the Peacock are (a normal good, an inferior good) . If the price of a room at the Grandiose were to decrease by 10%, from $250 to $225, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Peacock (falls, rises) from______rooms per night to_______rooms per night. Because the cross-price elasticity of demand is (negative, positive), hotel rooms at the Peacock and hotel rooms at the Grandiose are (complements, substitutes) . Peacock 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 (decrease, increase) . Decreasing the price will always have this effect on revenue when Peacock is operating on the (elastic, inelastic) portion of its demand curve. 8. Application: Elasticity and hotel roomsThe following graph input tool shows the daily demand for hotel rooms at the Peacock Hotel and Casino in Las Vegas, Nevada. To help the hotelmanagement better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These demandfactors, along with the values corresponding to the initial demand curve, are shown in the following table and alongside the graph input tool.Demand FactorAverage American household incomeround trip airfare from San Francisco (SFO) to Las Vegas (LAS)Room rate at the Grandiose Hotel and Casino, which is near the PeacockUse 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.PRICE (Dollars per room)500450400350300250200150100500Demand0 50 100 150 200 250 300 350 400 450 500QUANTITY (Hotel rooms)Graph Input ToolMarket for Peacock's Hotel RoomsPrice(Dollars per room)QuantityDemanded(Hotel rooms pernight)Demand FactorsAverage Income(Thousands ofdollars)Airfare from SFO toLASInitial Value$50,000 per year$100 per round trip$250 per night(Dollars per roundtrip)Room Rate atGrandiose(Dollars per night)20030050100250(?For each of the following scenarios, begin by assuming that all demand factors are set to their original values and that Peacock is charging $200 perroom per night.

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If average household income increases by 10%, from $50,000 to $55,000 per year, the quantity of rooms demanded at the Peacock (falls, rises) from rooms _____ per night to _____rooms per night. Therefore, the income elasticity of demand is (negative, positive) , meaning that hotel rooms at the Peacock are (a normal good, an inferior good) .

If the price of a room at the Grandiose were to decrease by 10%, from $250 to $225, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Peacock (falls, rises) from______rooms per night to_______rooms per night. Because the cross-price elasticity of demand is (negative, positive), hotel rooms at the Peacock and hotel rooms at the Grandiose are (complements, substitutes) .

Peacock 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 (decrease, increase) . Decreasing the price will always have this effect on revenue when Peacock is operating on the (elastic, inelastic) portion of its demand curve.

8. Application: Elasticity and hotel rooms
The following graph input tool shows the daily demand for hotel rooms at the Peacock 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 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
round trip airfare from San Francisco (SFO) to Las Vegas (LAS)
Room rate at the Grandiose Hotel and Casino, which is near the Peacock
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.
PRICE (Dollars per room)
500
450
400
350
300
250
200
150
100
50
0
Demand
0 50 100 150 200 250 300 350 400 450 500
QUANTITY (Hotel rooms)
Graph Input Tool
Market for Peacock's Hotel Rooms
Price
(Dollars per room)
Quantity
Demanded
(Hotel rooms per
night)
Demand Factors
Average Income
(Thousands of
dollars)
Airfare from SFO to
LAS
Initial Value
$50,000 per year
$100 per round trip
$250 per night
(Dollars per round
trip)
Room Rate at
Grandiose
(Dollars per night)
200
300
50
100
250
(?
For each of the following scenarios, begin by assuming that all demand factors are set to their original values and that Peacock is charging $200 per
room per night.

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