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Question

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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.

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For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Triple Sevens is charging $200 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 Triple Sevens ( falls,rises) from (what number) rooms per night to (what number) rooms per night. Therefore, the income elasticity of demand is (negative,positive) , meaning that hotel rooms at the Triple Sevens are (an inferior good, a normal good) . If the price of an airline ticket from SFO to LAS 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 Triple Sevens(falls,rises) from (what number) rooms per night torooms per night. Because the cross-price elasticity of demand is (negative,positive) , hotel rooms at the Triple Sevens and airline trips between SFO and LAS are (complements,subsitutes) . Triple Sevens is debating decreasing the price of its rooms to $175 per night. Under the initial demand conditions, you can see that this would cause its total revenue to (decrease,increase) . Decreasing the price will always have this effect on revenue when Triple Sevens is operating on the (elastic,inelastic) portion of its demand curve.

Explanation / Answer

The second link you have posted if not opening.

There are three factors affecting the demand: Income, airline price and tariff per room

If you change your inputs in graph secttion and with income increase the demand increases(postive income elasticty), then hotel room is normal good but if demand decreases(negative elasticity) with increase in income then it is inferior good.

If with airfare price increase demand decreases, then it has negative elasticty and hence compliment good.

If with airfare price increase demand increases then they are substitutes with postive cross price elasticity.

If with decrease in price the total revenue increases then the demand is elastic.

If with decrease in price the total revenue falls then the demand is inelastic.

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