# Application: Elasticity and hotel rooms The following graph...

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9. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Triple Sevens 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 Factor Initial Value Average American household income \$50,000 per year Roundtrip airfare from Los Angeles (LAX) to Las Vegas (LAS) \$250 per roundtrip Room rate at the Exhilaration Hotel and Casino, which is near the Triple Sevens \$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. For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Triple Sevens is charging \$350 per room per night. If average household income increases by 20%, from \$50,000 to \$60,000 per year, the quantity of rooms demanded at the Triple Sevens rises from
150 rooms per night to 200 rooms per night. Therefore, the income elasticity of demand is positive , meaning that hotel rooms at the Triple Sevens are a normal good . Points: 1 / 1 Close Explanation Explanation: When the Triple Sevens charges \$350 and average household income is \$50,000, it can fill 150 rooms per night at that price. However, if average household income increases to \$60,000, the quantity of rooms demanded rises to 200 rooms per night. The income elasticity of demand measures how much the quantity demanded of a good changes when there is a change in consumers' income. You can calculate the income elasticity of demand for Triple Sevens's hotel rooms by dividing the percentage change in quantity demanded by the percentage change in income: Income Elasticity of Dema nd Income Elasticity of Demand = = Percentage Change in Quantity DemandedPercentage Change in Income Percenta