Options for selection: 1. falls or rises 2. negative or positive 3. normal good or inferior good 4. falls or rises 5. negative or postive 6. substitutes or complements 7. increase or decrease 8. elastic or inelasticNo handwritten solution 9. Application: Elasticity and hotel roomsThe 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 hotelmanagement better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These demandfactors, along with the values corresponding to the initial demand curve, are shown in the following table and alongside the graph input tool.Demand FactorAverage American household incomeRoundtrip airfare from Pittsburgh (PIT) to Atlantic City (ACY)Room rate at the Meadows Hotel and Casino, which is near the OceansInitial Value$50,000 per year$100 per roundtrip$250 per night PRICE (Dollars per room)500450400350300250200150100500DemandI0 50 100 150 200 250 300 350 400 450 500QUANTITY (Hotel rooms)Oceans areGraph Input ToolMarket for Oceans's Hotel RoomsPrice(Dollars per room)QuantityDemanded(Hotel rooms pernight)Demand FactorsAverage Income(Thousands ofdollars)Airfare from PIT toACY(Dollars perroundtrip)Room Rate atMeadows(Dollars per night)15035050100250For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Oceans is charging $150 per roomper night.If average household income increases by 20%, from $50,000 to $60,000 per year, the quantity of rooms demanded ate Oceansrooms per night torooms per night. Therefore, the income elasticity of demand is, meaning that ifromfallspms at therisesIf the price of an airline ticket from PIT to ACY were to increase by 10%, from $100 to $110 roundtrip, while all other demand factors remain at theirrooms per night. Because the cross-priceInitial values, the quantity of rooms demanded at the Oceans fromelasticity of demand isrooms per night tohotel rooms at the Oceans and airline trips between PIT and ACY areOceans 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 toDecreasing the price will always have this effect on revenue when Oceans is operating on theportion ofits demand curve.

Elasticity of demand is a measure of how sensitive the quantity demanded of a product or service is…

9. Application: Elasticity and hotel rooms 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 Average American household income Roundtrip airfare from Pittsburgh (PIT) to Atlantic City (ACY) Initial Value $50,000 per year $100 per roundtrip

9. Application: Elasticity and hotel rooms 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 Average American household income Roundtrip airfare from Pittsburgh (PIT) to Atlantic City (ACY) Initial Value $50,000 per year $100 per roundtrip

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 4.9P: (Other Elasticity Measures) Complete each of the following sentences: a. The income elasticity of...

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Similar questions

Using the following equation for the demand for a good or service, calculate the price elasticity of demand (using the point form), cross-price elasticity with good x and income elasticity. Q=82P+0.10I+Px Q is quantity demanded, P is the product price. P1 is the price of a related good, and I is income. Assume that P= $10, I = 100, and Px = 20.
(Other Elasticity Measures) Complete each of the following sentences: a. The income elasticity of demand measures, for a given price, the __________ in quantity demanded divided by the __________ income from which it resulted. b. If a decrease in the price of one good causes a decrease in demand for another good, the two goods are __________. c. If the value of the cross-price elasticity of demand between two goods is approximately zero, they are considered __________.
What is the formula for the income elasticity of demand?
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Economists define normal goods as having a positive income elasticity. We can divide normal goods into two types: Those whose income elasticity is less than one and those whose income elasticity is greater than one. Think about products that would fall into each category. Can you come up with a name for each category?
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