8. Application: Elasticity and hotel rooms The following graph input tool shows

Question

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 New York (JFK) to Las Vegas (LAS) Room rate at the Grandiose Hotel and Casino, which is near the Peacock Initial Value $40,000 per year $200 per round trip $250 per night 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

Explanation / Answer

a) Increases.

b) 150 rooms per night to 250 rooms per night.

c) income elasticity of demand is Positive ,meaning that hotel rooms at the Peacock are normal good.

d) Decreases from 150 rooms per night to 100 rooms per night.

e) cross - price elasticity of demand is Positive, hotel rooms at the Peacock and hotel rooms at the Grandiose are Substitute to each other.

f) Total revenue to Increase.

g) Elastic portion of its demand curve.

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