Questions: For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Lakes is charging 350 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 Lakes rises from 100 rooms per night to 150 rooms per night. Therefore, the income elasticity of demand is positive , 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 rises from 150 rooms per night to 100 rooms per night. Because the cross-price elasticity of demand is positive , hotel rooms at the Lakes and hotel rooms at the Mountaineer are -

For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Lakes is charging 350 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 Lakes rises from 100 rooms per night to 150 rooms per night. Therefore, the income elasticity of demand is positive , 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 rises from 150 rooms per night to 100 rooms per night. Because the cross-price elasticity of demand is positive , hotel rooms at the Lakes and hotel rooms at the Mountaineer are -

Transcript text: For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Lakes is charging $350 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 Lakes rises from 100 rooms per night to 150 rooms per night. Therefore, the income elasticity of demand is positive , 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 rises from $150 rooms per night to 100 rooms per night. Because the cross-price elasticity of demand is positive , hotel rooms at the Lakes and hotel rooms at the Mountaineer are -

Solution

Solution Steps

Step 1: Income Elasticity of Demand

When income increases, the quantity demanded of hotel rooms at the Lakes also increases. This indicates that hotel rooms at the Lakes are a normal good, and the income elasticity of demand is positive.

Step 2: Cross-Price Elasticity of Demand

When the price of rooms at the Mountaineer decreases, the quantity demanded at the Lakes also decreases. This indicates that the two goods are complements, and the cross-price elasticity is positive.

Step 3: Price Elasticity of Demand and Total Revenue

Decreasing the price from $350 to $325 represents a decrease of $25, or approximately 7.14%. The initial values show that at a price of $350, the quantity demanded is 150 rooms. Thus, initial total revenue is $350 * 150 = $52,500. If the demand curve were perfectly inelastic (i.e., quantity demanded stayed at 150 rooms), total revenue would decrease to $325 * 150 = $48,750. Therefore, decreasing the price under these conditions would cause total revenue to decrease.