Application: Elasticity and hotel rooms
The following graph input tool shows the daily demand for hotel rooms at the Lakes 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.
If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Lakes fromrooms per night torooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Lakes are .
If the price of a room at the Mountaineer were to decrease by 10%, from $250 to $225, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Lakes fromrooms per night torooms per night. Because the cross-price elasticity of demand is , hotel rooms at the Lakes and hotel rooms at the Mountaineer are .
Lakes is debating decreasing the price of its rooms to $325 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 Lakes is operating on the portion of its demand curve.
9.Application: Elasticity and hotel rooms
The following graph input tool shows the daily demand for hotel rooms at the Lakes 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
$40,000 per year
Roundtrip airfare from Des Moines (DSM) to Atlantic City (ACY)
$200 per roundtrip
Room rate at the Mountaineer Hotel and Casino, which is near the Lakes
$250 per night
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