7. Other elasticity of demand The following graph input tool shows the daily demand for hotel rooms at the Triple Sevens 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 Exhilaration Hotel and Casino, which is near the Triple Sevens Initial Value $40,000 per year $200 per round trip $200 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. PRICE (Dollars per room) 500 450 400 350 300 250 200 150 100 50 0 0 Demand 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hotel rooms) Graph Input Tool Market for Triple Sevens's Hotel Rooms Price (Dollars per room) 200 Quantity 300 Demanded (Hotel rooms per night) Demand Factors Average Income 40 (Thousands of dollars) Airfare from JFK to 200 LAS (Dollars per round trip) Room Rate at 200 Exhilaration (Dollars per night) ? For each of the following scenarios, begin by assuming that all demand factors are set to their original values and that Triple Sevens is charging $200 per room per night. from , meaning that hotel rooms at the Triple If average household income increases from $40,000 to $60,000 per year, the quantity of rooms demanded at the Triple Sevens rooms per night to rooms per night. Therefore, the income elasticity of demand is Sevens are from If the price of a room at the Exhilaration were to decrease from $200 to $160, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Triple Sevens rooms per night to rooms per night. Because the cross-elasticity of hotel rooms at the Triple Sevens and hotel rooms at the Exhilaration are (Hint: Remember to reset any values you changed in the graph to their initial values by clicking on the circular arrow that appears next to the selected white field.) demand is Triple Sevens is debating decreasing the price of its rooms to $175 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 Triple Sevens is operating on the portion of its demand curve. (Hint: Remember to reset any values you changed in the graph to their initial values by clicking on the circular arrow that appears next to the selected white field.)