help Income and cross-price elasticity for hotel rooms Suppose the blue line on

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Income and cross-price elasticity for hotel rooms Suppose the blue line on the following calculator shows the demand for hotel rooms at the Big Winner Hotel and Casino in Las Vegas, Nevada. Three factors that affect the demand for rooms at the Big Winner are the average American household income, the roundtrip airfare from San Francisco (SFO) to Las Vegas (LAS), and the room rate at the Lucky Hotel and Casino, which is near the Big Winner. Use the calculator to help you answer the following questions. You will not be graded on any changes you make to the calculator. Tool tip: Use your mouse to drag the green line on the graph. The values in the boxes on the right side of the calculator will change accordingly. You can also directly change the values in the boxes with the white backgrounds by clicking in one of the boxes and typing. The graph and any related values will change accordingly. Suppose all the demand shifters are at their initial values (average income is $50,000 per year, airfare from San Francisco is $100 roundtrip, and the Lucky charges $150 per night). If the Big Winner were currently charging $100 per night, it would be operating on the portion of the demand curve, and lowering its price would its total revenue. (Hint: What happens if the Big Winner drops its price by $10?) Suppose that the Big Winner is currently charging $150 per night, airfare from San Francisco is $100 roundtrip (its initial value), and the Lucky is charging $150 per night (its initial value). If average household income were to increase by approximately 10%, from $50,000 to $55,000 per year, the quantity of rooms demanded at the Big Winner would rise from 300 to 340 per night an increase of 13%. Therefore, the income elasticity of demand would be 1.3. Thus, you may conclude that hotel rooms at the Big Winner are from the fact that the income elasticity of demand is . Suppose that the Big Winner is currently charging $150 per night, average household income is $50,000 (its initial value), and airfare from San Francisco is $100 roundtrip (its initial value). If the price of a room at the Lucky were to decrease by 10%, from $150 to $135, the quantity of rooms demanded at the Big Winner would fall from 300 to 270 per night a decrease of 10%. Therefore, the cross-price elasticity of demand between these two goods is 1.0. Thus,

Explanation / Answer

1 OPERATING ON THE LOWER PORTION OF DEMAND CURVE

2INCREASE

3 NORMAL(NEITHER SUPERIOR NOR INFERIOR)

GREATER THAN 1

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