The following graph input tool shows the daily demand for hotel rooms at the Oceans Hotel and Casino in Atlantic City, New Jersey. 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	$50,000 per year
Roundtrip airfare from New Orleans (MSY) to Atlantic City (ACY)	$100 per roundtrip
Room rate at the Meadows Hotel and Casino, which is near the Oceans	$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.

050100150200250300350400450500500450400350300250200150100500PRICE (Dollars per room)QUANTITY (Hotel rooms)Demand

Graph Input Tool

Market for Oceans's Hotel Rooms
	Price (Dollars per room)
	Quantity Demanded (Hotel rooms per night)

Demand Factors
	Average Income (Thousands of dollars)
	Airfare from MSY to ACY (Dollars per roundtrip)
	Room Rate at Meadows (Dollars per night)

For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Oceans is charging $150 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 Oceans from

rooms per night to

rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Oceans are .

If the price of an airline ticket from MSY to ACY were to increase by 10%, from $100 to $110 roundtrip, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Oceans from

rooms per night to

rooms per night. Because the cross-price elasticity of demand is , hotel rooms at the Oceans and airline trips between MSY and ACY are .

Oceans is debating decreasing the price of its rooms to $125 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 Oceans is operating on the portion of its demand curve.