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

Explanation / Answer

law of interest expresses the amount requested of a decent or administration diminishes with an expansion in its value level and the other way around.

that is,price level and amount requested are conversely identified with each other.for this reason,the request bend is descending slanting.

a development along the interest bend happens because of changes in the value level however,ashift in the interest bend happens when every single other factor change,keeping the value level as settled or steady.

assume the normal US family unit pay is $50,000 per year.the roundtrip from SF to LAS is $200 per roundtrip,which is the cost of complentary great. also,the room rate at close by inn and casino(GD) is $250 per night,which is the cost of substitute great.

the given diagram demonstrates the market interest for lodging rooms of 'PC',it is adownward slanting line,which delineates a converse connection between cost of a night,in inn and amount requested ofhotel rooms.

'PC' lodging is right now charging $300 per night,where 200 inn rooms aredemanded

assume the normal family unit pay increments by 20% from$50,000 to$60,000 every year. in the event that great is a typical decent, the shoppers will build its interest when their wage rises.a rise will expand the interest for every ordinary great and the interest bend shifts rightwards at each value level.

thus, the requested for their inn rooms will increment and the interest bend will move nightwards by 50 rooms at each value level.consumers can remain for 50 more evenings as they have $10,000 in overabundance to spend.

therefore,the amount of rooms requested will increment from200 rooms every night to 250 for every night.the cost will stays in the same at $300per night.

the income elasticity (e) of demand measures the degree of responsitiveness of a change in the quantity demanded due to a change in the income level of the consumer.

it is measured by the formula given:

e=%change in quantity demanded/% change in income

=[(250-200)/200]*100/20%

=25%/20%

=1.25

in this manner, the pay versatility of interest for inn rooms is 1.25.as the modulus estimation of flexibility is more prominent than '1',the interest is versatile.

complimentary great is a decent which is devoured together with the positive qualities in question.there is a concurrent utilization of the two products

.

for example,pen and refill are corresponding goods.if the cost of a relative complimentary great ascents, the amount requested for that substitute great falls.

assume the cost of a carrier ticket from SF to LAS increments by 10% from $200 to $220 roundtrip.this would diminish the interest for aircraft tickets.

review that carrier tickets are complementaryservice to inn rooms since individuals must take flights to achieve the inns of 'PC'.thus,the interest for lodging rooms at inn 'PC' will diminish.

A decrese in demand will shift the demand curve to the left at each price level.due to the shift,both equllibrium price and quantity decreases.

The price charged by hotel GD is still %200 per night,however their quantity demanded of hotel rooms will decrease from300 rooms per nightto 275 rooms per night.

"cross-price" elasticity measure the degree of responsiveness of a change in the quantity demanded of a good for a given change in the price level of some other good in which is a close substitute.

the cross price elasticity(Ed) is calculated by the formula given below:

Et^d=% age change in quantity demanded of a good/% age change in price of

complementary good

{[175-200)/200]*100/10%}

={-12.50%/10%}

=-1.25

hence, the cross price elasticity is 1.25 as the modulus value of elasticity is greaterthan '1',the demand is elastic.

lodging 'PC' has bantered to diminish the cost of their rooms $300 every night to $275 per night.As the cost of claim inn rooms has decreased,there will be amovement alongthe request bend.

the amount requested of lodging rooms at 'PC' will increment to 225 rooms for every night.

before the decline in prices,the add up to incomes were $60,000.After the change in price,the add up to income are $61,875.

the aggregate income have expanded from $60,000 to $61,875.A diminish in cost and an expansion in amount requested have prompted an increment in the aggregate incomes.

this implies the inn is working at "versatile bit" of its interest bend on the grounds that the rate diminish in cost level is lower than the rate increment in the amount demanded,which prompts a fall in the aggregate incomes.

This means that the hotel is operating at "elastic portion" of its demand curve because the percentage decrease in price level is lower than the percentage increase in the quantity demanded,which leads to a fall in the total revenues.

  

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