For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $300 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 Big Winner from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Big Winner are If the price of an airline ticket from JFK to LAS were to increase by 10%, from $200 to $220 roundtrip, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Big Winner v from rooms per night to rooms per night. Because the cross-price elasticity of demand is hotel rooms at the Big Winner and airline trips between JFK and LAS are Big Winner is debating decreasing the price of its rooms to $275 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 Big Winner is operating on the portion of its demand curve.
For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $300 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 Big Winner from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Big Winner are If the price of an airline ticket from JFK to LAS were to increase by 10%, from $200 to $220 roundtrip, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Big Winner v from rooms per night to rooms per night. Because the cross-price elasticity of demand is hotel rooms at the Big Winner and airline trips between JFK and LAS are Big Winner is debating decreasing the price of its rooms to $275 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 Big Winner is operating on the portion of its demand curve.
Chapter5: Income And Substitution Effects
Section: Chapter Questions
Problem 5.9P
Related questions
Question
Transcribed Image Text:9. Application: Elasticity and hotel rooms
The following graph input tool shows the daily demand for hotel rooms at the Big Winner 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.
Initial Value
Demand Factor
Average American household income
$50,000 per year
Roundtrip airfare from New York (JFK) to Las Vegas (LAS)
$200 per roundtrip
Room rate at the Lucky Hotel and Casino, which is near the Big Winner
$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 Big Winner's Hotel Rooms
500
450
Price
300
(Dollars per room)
400
Quantity
Demanded
(Hotel rooms per
night)
200
350
300
250
Demand Factors
200
150
Average Income
(Thousands of
dollars)
Demand
100
50
Airfare from JFK to
LAS
(Dollars per
roundtrip)
200
0.
0.
50
100 150 200 250 300 350 400 450 500
QUANTITY (Hotel rooms)
Room Rate at Lucky
(Dollars per night)
250
PRICE (Dollars per room)
50
Transcribed Image Text:For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $300 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 Big Winner
from
rooms per night to
rooms per night. Therefore, the income elasticity of demand is
meaning that
hotel rooms at the Big Winner are
If the price of an airline ticket from JFK to LAS were to increase by 10%, from $200 to $220 roundtrip, while all other demand factors remain at their
initial values, the quantity of rooms demanded at the Big Winner
from
rooms per night to
rooms per night. Because the
cross-price elasticity of demand is
hotel rooms at the Big Winner and airline trips between JFK and LAS are
Big Winner is debating decreasing the price of its rooms to $275 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 Big Winner is operating on the
portion of its demand curve.
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