The following graph input tool shows the daily demand for hotel rooms at the Pea

Question

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 Roundtrip airfare from New York (JFK) to Las Vegas (LAS) Room rate at the Grandiose Hotel and Casino, which is near the Peacock$250 per night Initial Value $50,000 per year $100 per roundtrip 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 Graph Input Tool Market for Peacock's Hotel Rooms 450 400 350 Price 200 Dollars per room) Quantit Demanded (Hotel rooms per night) 300 300 250 200 Demand Factors 150 Average Income (Thousands of dollars) and 50 100 Airfare from JFK to LAS (Dollars per roundtrip) 50 100 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hotel rooms) Room Rate at Grandiose (Dollars per night) 250

Explanation / Answer

Answer:-

1. rises, from 300 to 325

Additional income = 60,000 - 50,000 = 10,000

Cost of 1 room = 200

Additional room that can be purchased = 10,000/200 = 50

2. Income elasticity of demand = % change in quantity demanded / % change in income

% change in quantity demanded = [(250-200 )/200 ]X 100/20% =
25%/20%=1.25%


% change in income = 20%

Income Ed = 1.25/20% = 0.0625

3. Normal goods because increase in income increases demand of hotel rooms

4. falls, 300 to 250

5. Cross price elasticity = % change in quantity demanded / % change in price of other good

% change in quantity demanded = (250 - 300)/300 X 100 = - 16.67%

% change in price = 10%

Cross price elasticity = - 16.67/10 = - 1.67

6. Substitutes because they are used in place of one another.

7. increases; elastic

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