Economics of Tourism and Recreation



Economics of Tourism and Recreation

Assignment 1

Due February 28, 2011

NAME: __________________________________

ID: ___________________________________

1. In the space provide, draw the following:

a. Draw a demand curve, and be sure to label the axes.

b. Draw an increase in demand. Be sure to label which is the initial demand curve, and which is the demand curve after the increase.

c. Draw an decrease in demand. Be sure to label which is the initial demand curve, and which is the demand curve after the decrease.

2. For the following events, identify whether tourism demand in Oman will increase or decrease by circling the correct answer.

a. An increase in foreign income will cause tourism demand to increase/decrease.

b. An increase in the price of air travel will cause tourism demand to increase/decrease.

c. An increase in the price of a holiday in Egypt will cause tourism demand to increase/decrease.

3. For the following events, identify whether demand for hotels will increase or decrease by circling the correct answer.

a. A decrease in foreign income will cause the demand for hotels to increase/decrease.

b. A decrease in the price of air travel will cause the demand for hotels to increase/decrease.

c. An increase in the price of other hotels will cause the demand for hotels to increase/decrease.

4. For the following events, identify whether demand for tour operations will increase or decrease by circling the correct answer.

a. A decrease in the price of rental cars will cause the demand for tours to increase/decrease.

b. An decrease in the price of hotels will cause the demand for tours to increase/decrease.

c. A decrease in foreign income will cause the demand for tours to increase/decrease.

5. Suppose when a hotel charges RO60 for a hotel room, the demand is 100 rooms per week. But when the price is increased to RO75 for a hotel room, the demand is 90 rooms per week.

a. Calculate the price elasticity of demand.

b. Is demand elastic, or inelastic?

6. Suppose when foreign income rises by 5%, the number of tourists increased by 20%. Calculate the income elasticity of tourism demand.

7. Suppose when the price of air travel increases by 20%, the number of tourists decreased by 30%. Calculate the cross price elasticity of tourism demand.

8. Suppose when the price of the Falaj Daris Hotel increases by 10%, the quantity demanded for the Golden Tulip Hotel increases by 5%. Calculate the cross price elasticity of demand.

9. Suppose you are running a hotel and you learn that the income elasticity of demand for foreign tourists is 2. You then find out that foreign income is going to fall be 10% over the next year. Given the income elasticity of demand, what will happen to the demand for your hotel over the next year?

10. Suppose you are running a tourism operations business. You know that the cross price elasticity of demand for hotels is -0.5. If the hotels are expected to increase their price by 10%, what will happen to the demand for your tour operations business?

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