Natural disasters such as earthquakes significantly reduce tourism to the area directly affected and to surrounding areas
Question:
Natural disasters such as earthquakes significantly reduce tourism to the area directly affected and to surrounding areas for a time. Nishimura et al. (2013) investigate the extent of the reduction in tourism, how long tourism is affected, and the areas that are affected for five recent earthquake disasters in Japan. They find that the number of tourists return to their original trends within a year. Assume that a natural disaster renders \(50 \%\) of hotel rooms unusable and also causes demand to fall by \(50 \%\). Use a supply-and-demand diagram to show how this would affect the tourism demand and supply curves and the effects on equilibrium price and quantity. What would happen to the equilibrium price if demand fell by more than \(50 \%\) ?
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