PART 2:

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 Initial Value Average American household income $40,000 per year $200 per roundtrip Roundtrip airfare from New York (JFK) to Las Vegas (LAS) Room rate at the Exhilaration Hotel and Casino, which is near the Triple Sevens $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. Graph Input Tool Market for Triple Sevens's Hotel Rooms 500 450 300 400 Price (Dollars per room) Quantity Demanded (Hotel rooms per night) 200 350 300 PRICE (Dollars per room) 250 Demand Factors 200 150 Demand 40 100 50 200 Average Income (Thousands of dollars) Airfare from JFK to LAS (Dollars per roundtrip) Room Rate at Exhilaration (Dollars per night) 0 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hotel rooms) 200 For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Triple Sevens is charging $300 per room per night. If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Triple Sevens from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Triple Sevens are If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Triple Sevens "FALL OR RISES" from rooms per night ___ to rooms per night___. Therefore, the income elasticity of demand is "NEGATIVE OR POSITIVE", meaning that hotel rooms at the Triple Sevens are "INFERIOR OR NORMAL GOOD." If the price of a room at the Exhilaration were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Triple Sevens "FALLS OR RISES" from rooms per night to rooms per night __. Because the cross-price elasticity of demand is "NEGATIVE OR POSITIVE" , hotel rooms at the Triple Sevens and hotel rooms at the Exhilaration are "SUBSTITUTES OR COMPLEMENTS." Triple Sevens 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 "DECREASE OR INCREASE" . Decreasing the price will always have this effect on revenue when Triple Sevens is operating on the "ELASTIC OR INELASTIC" portion of its demand curve. 1. Determinants of the price elasticity of demand Consider some determinants of the price elasticity of demand: The availability of close substitutes Whether the good is a necessity or a luxury How broadly you define the market The time horizon being considered demand, since consumers can easily choose to purchase one of the close A good with many close substitutes is likely to have relatively elastic substitutes if the price of the good rises. A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand? Yacht Chemotherapy for cancer patients The price elasticity of demand for a good also depends on how you define the good. Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between. Categories Most Elastic In Between Least Elastic Clothing Pants Boot-cut jeans 0 The price elasticity of demand is also affected by the given time horizon. If the price of gasoline is relatively high for a long time, consumers are more likely to buy more fuel-efficient cars or switch to alternatives like public transportation. Therefore, the demand for gasoline is elastic in the short run than in the long run. 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 Initial Value Average American household income $40,000 per year $200 per roundtrip Roundtrip airfare from New York (JFK) to Las Vegas (LAS) Room rate at the Exhilaration Hotel and Casino, which is near the Triple Sevens $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. Graph Input Tool Market for Triple Sevens's Hotel Rooms 500 450 300 400 Price (Dollars per room) Quantity Demanded (Hotel rooms per night) 200 350 300 PRICE (Dollars per room) 250 Demand Factors 200 150 Demand 40 100 50 200 Average Income (Thousands of dollars) Airfare from JFK to LAS (Dollars per roundtrip) Room Rate at Exhilaration (Dollars per night) 0 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hotel rooms) 200 For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Triple Sevens is charging $300 per room per night. If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Triple Sevens from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Triple Sevens are If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Triple Sevens "FALL OR RISES" from rooms per night ___ to rooms per night___. Therefore, the income elasticity of demand is "NEGATIVE OR POSITIVE", meaning that hotel rooms at the Triple Sevens are "INFERIOR OR NORMAL GOOD." If the price of a room at the Exhilaration were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Triple Sevens "FALLS OR RISES" from rooms per night to rooms per night __. Because the cross-price elasticity of demand is "NEGATIVE OR POSITIVE" , hotel rooms at the Triple Sevens and hotel rooms at the Exhilaration are "SUBSTITUTES OR COMPLEMENTS." Triple Sevens 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 "DECREASE OR INCREASE" . Decreasing the price will always have this effect on revenue when Triple Sevens is operating on the "ELASTIC OR INELASTIC" portion of its demand curve. 1. Determinants of the price elasticity of demand Consider some determinants of the price elasticity of demand: The availability of close substitutes Whether the good is a necessity or a luxury How broadly you define the market The time horizon being considered demand, since consumers can easily choose to purchase one of the close A good with many close substitutes is likely to have relatively elastic substitutes if the price of the good rises. A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand? Yacht Chemotherapy for cancer patients The price elasticity of demand for a good also depends on how you define the good. Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between. Categories Most Elastic In Between Least Elastic Clothing Pants Boot-cut jeans 0 The price elasticity of demand is also affected by the given time horizon. If the price of gasoline is relatively high for a long time, consumers are more likely to buy more fuel-efficient cars or switch to alternatives like public transportation. Therefore, the demand for gasoline is elastic in the short run than in the long run