1. Business
  2. Economics
  3. 2 pricing and surplus aa aa consider the market for...

Question: 2 pricing and surplus aa aa consider the market for...

Question details

2. Pricing and surplus Aa Aa Consider the market for hotel rooms in London of August of 2011, a year before the 2012 Olympics are set to take place. The demand curve represents demand for actual hotels stays during that period (that is, it does not include current bookings for stays in the future), and the supply curve is assumed to be fixed in the short-run by the number of hotels currently in the market. As the article describes, London hotels are also booking reservations for the Olympic period, and therefore they must consider what the market will look like in 2012 to determine what rates to charge. Adjust the following graph to reflect the hoteliers prediction of what the demand for hotel rooms will look like during the August of 2012 Tool tip: Click and drag one or both of the curves. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just try again and drag it a little fartherPRICE (Average Price of Room per Night] 1800 Supply 1500 1200 600 300 Demand 100 200 300 400 500 600 QUANTITY (Thousands of Hotel RoomsSuppose rather than setting prices based on expected demand, the hotels join the London Visitor Charter mentioned in the article and agree to charge no more than their usual August rates (as shown by the initial equilibrium). Based on the previous graph, this would cause a of roughly rooms during the Olympics. The Charter is an example of a Recall from the article that most hotels 2012 rates ended up statement best describes why this pricing behavior occurred? the usual August rates. Which O Price controls help to resolve shortages O Price controls are only efficient when enforced by the government Price controls are difficult to maintain in the face of excess demandNow, suppose entrepreneurs predict high demand for hotel rooms in 2012 and buy other buildings in London and convert them into hotels available for the Olympic games. Show the effect of both the anticipated change in demand and the creation of new hotels on the market by shifting one or both of the curves on the following graph. PRICE (Average Price of Room per Night 600 Supply 500 400 300 200 100 Demand 100 200 300 400 500 600 QUANTITY (Thousands of Hotel RoomsConsider the equilibrium prices and quantities in the scenarios discussed, then indicate in the following table which scenario yields the highest price, the lowest price, and the highest quantity of hotel rooms. 1. Existing hotels join the charter and charge standard August rates (price controls) and no new hotels enter the market. 2. Existing hotels set prices based on expected 2012 demand (market prices) and no new hotels enter the market. 3. New hotels enter the market and hotels charge rates determined by the intersection of the new supply and demand (market prices). 1. Price controls, no entry 2. Market prices, no entry 3. Market prices, entry Highest Price Lowest Price Highest Quantity

Solution by an expert tutor
Blurred Solution
This question has been solved
Subscribe to see this solution