The following graph input tool shows the daily demand for hotel rooms at the Rivers 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. PRICE (Dollars per room) Demand Factor Average American household income Roundtrip airfare from Pittsburgh (PIT) to Atlantic City (ACY) Room rate at the Continental Hotel and Casino, which is near the Rivers 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) Initial Value $50,000 per year $250 per roundtrip $200 per night Market for Rivers'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 Continental (Dollars per night) 150 350 50 250 200 For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Rivers is charging $150 per rod per night. If average household income increases by 20%, from $50,000 to $60,000 per year, the quantity of rooms demanded at the Rivers from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Rive If the price of an airline ticket from PIT to ACY were to increase by 20%, from $250 to $300 roundtrip, while all other demand factors remain at t initial values, the quantity of rooms demanded at the Rivers from rooms per night to rooms per night. Because the cross- elasticity of demand is ▼, hotel rooms at the Rivers and airline trips between PIT and ACY are Rivers 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 revenue to . Decreasing the price will always have this effect on revenue when Rivers is operating on the portion demand curve.
The following graph input tool shows the daily demand for hotel rooms at the Rivers 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. PRICE (Dollars per room) Demand Factor Average American household income Roundtrip airfare from Pittsburgh (PIT) to Atlantic City (ACY) Room rate at the Continental Hotel and Casino, which is near the Rivers 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) Initial Value $50,000 per year $250 per roundtrip $200 per night Market for Rivers'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 Continental (Dollars per night) 150 350 50 250 200 For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Rivers is charging $150 per rod per night. If average household income increases by 20%, from $50,000 to $60,000 per year, the quantity of rooms demanded at the Rivers from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Rive If the price of an airline ticket from PIT to ACY were to increase by 20%, from $250 to $300 roundtrip, while all other demand factors remain at t initial values, the quantity of rooms demanded at the Rivers from rooms per night to rooms per night. Because the cross- elasticity of demand is ▼, hotel rooms at the Rivers and airline trips between PIT and ACY are Rivers 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 revenue to . Decreasing the price will always have this effect on revenue when Rivers is operating on the portion demand curve.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:9. Application: Elasticity and hotel rooms
The following graph input tool shows the daily demand for hotel rooms at the Rivers 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.
PRICE (Dollars per room)
Demand Factor
Average American household income
Roundtrip airfare from Pittsburgh (PIT) to Atlantic City (ACY)
Room rate at the Continental Hotel and Casino, which is near the Rivers
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)
Initial Value
$50,000 per year
$250 per roundtrip
$200 per night
Market for Rivers'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
Continental
(Dollars per night)
150
350
50
250
200
For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Rivers 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 at the Rivers from
rooms per night to
rooms per night. Therefore, the income elasticity of demand is
, meaning that hotel rooms at the Rivers are
If the price of an airline ticket from PIT to ACY were to increase by 20%, from $250 to $300 roundtrip, while all other demand factors remain at their
initial values, the quantity of rooms demanded at the Rivers from
rooms per night to
rooms per night. Because the cross-price
elasticity of demand is
, hotel rooms at the Rivers and airline trips between PIT and ACY are
Rivers 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 Rivers is operating on the
portion of its
demand curve.
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