Essay Examination 1
Tourism Economics Analysis

These questions are from the test bank. An "A" answer requires at least three or four intelligent sentences. Some questions may require more sentences if they have multiple parts.

Lecture 1 - An Introduction to Tourism Economics

1. Please draw a convex Production Possibilities Curve (PPC). 

(a) What is economic growth in regards to the PPC?

(b) Which three factors of production (i.e. resources) can cause the PPC to shift outward?

2. What is the difference between a straight line Production Possibilities Curve (PPC) and a convex PPC?

3. What is the definition of tourism economics?  The definition has four parts.

4. What are three types of tourism?

(a) What are three advantages of tourism economics? 

(b) What are four disadvantages?

Lecture 2 - Review of Supply and Demand

5. Why does the demand function have a negative slope?

(a) What is the Law of Diminishing Marginal Utility?

(b) What is the Income and Substitution Effect?

6. Please draw the supply functions for two firms:  Firm 1 and Firm 2.  Show graphically and explain in words how to derive the market supply function.

7. Please draw a demand and supply curve for the hotel market in Phuket, Thailand.  Make sure you label the axis.  What happens to the hotel market, if the Thai government charges a $100 fee on tourists, as they pass through customs at the airport?

8. Please draw the supply and demand functions for hotel rooms and set the equilibrium price at $50 per night.   Make sure you label all the axes, and the supply and demand functions.  Assume the government does not impose any price controls on the hotel market.

(a) What happens if a price shock increases the price to $75?  Explain in words and show graphically.

(b) What happens if a price shock decreases the price to $40?  Explain in words and show graphically.

(c) Is the market inherently stable?

9. Please draw the market for rental units in Melbourne, Australia.  The equilibrium price is $1,000 per month.  The Australian government wants to attract more tourists and passes a price ceiling of $500 per month on the rental units.

(a) What are the primary effects on the rental market?  Describe in words and show graphically.

(b) What are two secondary effects?

10. Please draw the market for labor in Thailand.  The equilibrium wage is $100 per month.  The Thai government wants to boosts wages and passes a price floor of $200 per month on the labor market.

(a) What are the primary effects on the Thai labor market?  Describe in words and show graphically.

(b) What are two secondary effects?

11. What are two definitions of tourism supply?

Lectures 3 - Elasticities

You may need the following equations:

12. Please define the following terms.

(a) Price elasticity of demand -

(b) Relatively elastic demand -

(c) Relatively inelastic demand –

(d) Unitary elastic demand -

13. Please draw a linear demand function for the airline travel market.  Then label each region on the demand function in terms of elasticity.

14. You have the following price elasticities of demand.  Explain how firms could increase their revenue by a corresponding price strategy.

(a) Elasticity of demand for cars, E _D = -3.23.  If the price decreases by 10%, what is the approximate percent change in quantity demanded and revenue?

(b) Elasticity of demand for cigarettes, E _D =  -0.78.  If the quantity demand increases by 10%, what is the approximate percent change in revenue?

(c) Elasticity of demand for cinema, E _D = -1.0.  If the price decreases by 10%, what is the approximate percent change in quantity demanded and revenue?

15. Please define the cross price elasticity of demand.

(a) What are independent goods in terms of cross price elasticity?  Please give an example of independent goods.

(b) What are substitute goods in terms of cross price elasticity? Please give an example of substitute goods.

(c) What are complement goods in terms of cross price elasticity?  Please give an example of complement goods.

16. What is the difference in elasticity for demand functions that are linear and nonlinear?

(a) Why are elasticities so useful?

(b) How does the substitution and income effects impact elasticities?

(c) What is the Second Law of Demand?

17. Please draw a nonlinear demand function and select two points on the function.  Explain how a price change changes the revenue a firm receives.  You are comparing two regions on the graph.

18. You have the following cross price elasticities of demand.  Please explain what these elasticities mean.

(a) Cross price elasticity of demand for pickled eggs and beer, E _XY = -3.00.

(b) Cross price elasticity of demand for tea and coffee, E _I = 0.0.

(c) Cross price elasticity of demand for pizza and fish, E _I = 4.0.

19. Please define the income elasticity of demand.

(a) What is an inferior good in terms of income elasticity?  Please give an example of an inferior good.

(b) What is a necessity in terms of income elasticity?  Please give an example of a necessity.

(c) What is a luxury good in terms of income elasticity?  Please give an example of a luxury good.

(d) Why is income elasticity important for tourism economics?

20.  Please draw a very short-run supply curve.  What kind of elasticity does this curve have?

(a) Please draw a short-run supply curve.  What kind of elasticity does this curve have?

(b) Please draw a long-run supply curve.  What kind of elasticity does this curve have?