For each of the following scenarios, begin by assuming that all demand factors are set to their original values and that Big Winner is charging $200 per room per night. If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Big Winner falls ▼ from rooms per night to ooms per night. Therefore, the income elasticity of demand is negative ▼, meaning that hotel rooms at the Big Winner are a normal good If the price of a room at the Lucky were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Big Winner rises v from 300 rooms per night to -240 rooms per night. Because the cross-price elasticity of demand is negative ▼ hotel rooms at the Big Winner and hotel rooms at the Lucky are substitutes Big Winner 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 increase v. Decreasing the price will always have this effect on revenue when Big Winner is operating on the inelastic portion of its demand curve.
For each of the following scenarios, begin by assuming that all demand factors are set to their original values and that Big Winner is charging $200 per room per night. If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Big Winner falls ▼ from rooms per night to ooms per night. Therefore, the income elasticity of demand is negative ▼, meaning that hotel rooms at the Big Winner are a normal good If the price of a room at the Lucky were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Big Winner rises v from 300 rooms per night to -240 rooms per night. Because the cross-price elasticity of demand is negative ▼ hotel rooms at the Big Winner and hotel rooms at the Lucky are substitutes Big Winner 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 increase v. Decreasing the price will always have this effect on revenue when Big Winner is operating on the inelastic portion of its demand curve.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Demand Factor
Initial Value
Average American household income
$40,000 per year
Round trip airfare from Los Angeles (LAX) to Las Vegas (LAS)
$200 per round trip
Room rate at the Lucky Hotel and Casino, which is near the Big Winner
$200 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.
Graph Input Tool
Market for Big Winner's Hotel Rooms
500
I Price
(Dollars per room)
450
200
400
Quantity
Demanded
(Hotel rooms per
night)
300
350
300
250
Demand Factors
200
150
Average Income
(Thousands of
dollars)
Demand
40
100
50
Airfare from LAX to
LAS
(Dollars per round
trip)
200
0 50 100 150 200 250 300 350 400 450 500
QUANTITY (Hotel rooms)
Room Rate at Lucky
(Dollars per night)
200
PRICE (Dollars per room)
Transcribed Image Text:For each of the following scenarios, begin by assuming that all demand factors are set to their original values and that Big Winner is charging $200 per
room per night.
If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Big Winner falls ▼ from
rooms per night to
Pooms per night. Therefore, the income elasticity of demand is negative ▼ , meaning that hotel rooms at the
Big Winner are a normal good
If the price of a room at the Lucky were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the
quantity of rooms demanded at the Big Winner rises
300 rooms per night to
from
240 rooms per night. Because the cross-price
elasticity of demand is negative
hotel rooms at the Big Winner and hotel rooms at the Lucky are
substitutes ▼
Big Winner 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 increase
Decreasing the price will always have this effect on revenue when Big Winner is operating on the
inelastic
portion of its demand curve.
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