Question

9. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Big Winner Hotel and Casino in Las Vegas, Nevada. 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 FactorInitial ValueAverage American household income$40,000 per yearRoundtrip airfare from New York (JFK) to Las Vegas (LAS)$250 per roundtripRoom rate at the Lucky Hotel and Casino, which is near the Big Winner$250 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.

For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $150 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 _______ from _______ rooms per night to _______ rooms per night. Therefore, the income elasticity of demand is _______  , meaning that hotel rooms at the Big Winner are _______ .

Answer 1

Answer 2