Answer to Question #52710 in Microeconomics for Yana

Question

Assume that the hotel room market in some country satisfies the following set of assumptions:
- the market is perfectly competitive
-the market is presently in long run equilibrium
-all hotels are the same.
b) Suppose that World Travel Organization publishes the report, cautioning travelers about the risks of travelling to that country. Travelers are adviced to exercise causuion since protests, often at short notice, can be expected across major cities in that country. Travelers are also adviced not to stray from the roads and major routs without an experienced guide because there are many landmines that have not been cleared. The report states that the crime rate is relatively high. Therefore, travellers should avoid dark and unlit streets and stairways, avoid showing large sums of money in public and not to use ATMs after dark, etc. This puts a real dumper on traveler's desire to travel to that country.

Explain and indicant on the graphs for the previous part what will happen to in hotel business to price, quantity and profits in the short run and long run. Be sure to discuss and graphically point out both the effect on the individual hotel and the entire hotel market.

Answer 1

b) If the World Travel Organization publishes the report, cautioning travelers about the risks of travelling to that country and travelers are advised to exercise causation since protests, often at short notice, can be expected across major cities in that country, there will be damages to hotel business. The price will decrease, quantity will decrease too, so the profits in the short run will decrease too. In the long run the damages may be even more significant, if the situation in the country will not improve. The individual hotels will shut down, but the entire hotel market will exist.