Foreign travel

Foreign travel - Things were not so rosy however when...

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America’s a Nice Place to Live, but We Can’t Afford to Visit In 1992, 18.6 million Canadians visited the United States, but only 11.8 million U.S. residents visited Canada. By 2002, however, roles had been reversed: more U.S. residents visited Canada than vice versa. Why did the tourist traffic reverse direction? Canada didn’t get any warmer from 1992 to 2002— but it did get cheaper for Americans. The reason was a large change in the exchange rate between the two nations’ currencies: in 1992 a Canadian dollar was worth US$0.80, but by 2002 it had fallen in value by nearly 20 percent to about US$0.65. This meant that Canadian goods and services, particularly hotel rooms and meals, were about 20 percent cheaper for Americans in 2002 compared to 1992. So Canada had become a cheap vacation destination for Americans by 2002.
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Unformatted text preview: Things were not so rosy, however, when viewed from the other side of the border: American vacations had become 20 percent more expensive for Canadians. Canadians responded by vacationing in their own country or in other parts of the world besides the United States. Foreign travel is an example of a good that has a high price elasticity of demand. One reason is that foreign travel is a luxury good for most people—you may regret not going to Paris this year, but you can live without it… A second reason is that a good substitute for foreign travel typically exists—domestic travel. A Canadian who finds it too expensive to vacation in San Francisco this year is likely to find that Vancouver is a pretty good alternative....
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