The purpose of this book continues to be to provide those involved in the business of recreation, leisure and tourism with an understanding of the practical aspects of economics. The last part of the chapter explains how the study area of recreation, leisure and tourism can be analyzed with the help of economic techniques.
DEFINITION AND SCOPE OF RECREATION, LEISURE AND TOURISM
First, the field of recreation, leisure and tourism will be discussed, and secondly, the scope and techniques of economics will be outlined. Aware of the problems involved, several definitions of travel and tourism work are now being attempted.
WORKING DEFINITIONS
DEFINITION, SCOPE AND METHODOLOGY OF ECONOMICS
Production of CD players is falling Resources withdrawn from production of CD players Figure 1.3 The price mechanism in operation. Free market advocates argue that the system allows for maximum consumer choice or sovereignty.
THE ECONOMICS OF RECREATION, LEISURE AND TOURISM
As well as making choices in the market between different leisure goods and services and other goods and services, individuals are also faced with the choice of allocating time between work and leisure. On the other hand, as hourly earnings increase, workers are faced with an assumed increase in the cost of not working (i.e., the opportunity cost of leisure increases).
REVIEW OF KEY TERMS
The uses and misuses of economics
It is therefore important to understand the limits of any single approach and the fact that most recreation and tourism issues are multifaceted. 2 What kind of questions are each of the following. a) The level of a minimum wage for the hotel industry.
Active outdoor recreation and its contribution to the US economy
The Outdoor Industry Foundation is a non-profit organization dedicated to encouraging participation in active outdoor recreation and healthier lifestyles. 4 How important is the outdoor recreation sector in the country you are studying.
Consultancy report: The economic impact of the london 2012 olympics
1 (a) Referring back to Task 1.1, the knowledge produced in this report is disciplinary or functional knowledge. b) Why might some observers dispute the findings of this report. 5 The report highlights the positive impact of outdoor recreation in terms of health benefits - are there any negative impacts.
MULTIPLE CHOICE
REVIEW QUESTIONS
Institute of Leisure and Amenities Management: www.ilam.co.uk World Tourism Organization: www.world-tourism.org. Teaching aids in economics and business studies: www.bized.ac.uk ALTIS guide to internet resources in hospitality, leisure, sport and tourism: www.altis.ac.uk.
PUBLIC-SECTOR ORGANIZATIONS
Figure 2.2 illustrates the objectives of the Government Department of Resources, Energy and Tourism in Australia. Central government organizations are owned by the government on behalf of the population.
PRIVATE-SECTOR ORGANIZATIONS
Exhibit 2.4 discusses the case of the Qantas Group – a major national and international airline operating in Australia. For example, Exhibit 2.5 illustrates the goals of the Walt Disney Company, where it is clear that maximizing long-term shareholder value is a primary concern.
NON-PROFIT MAKING ORGANIZATIONS
Mission types
It also makes recommendations to the Hong Kong Special Administrative Region (SAR) government and other relevant bodies on the scope and quality of visitor facilities. 2 What aspects of the mission agenda are likely to be found for (a) a private sector corporation. b) A non-profit organization (c) A local government organization.
Ferrovial is one of the world's leading infrastructure companies, with 104,000 employees and operating in 43 countries across a range of sectors including construction, airport, toll road and car park management and maintenance, and utilities. 1 Identify the different aspects of the mission agenda that are evident in each of the above organizations using Figure 2.1 and discuss these differences.
Virgin London 1970s
Department for Culture, Media and Sport: www.culture.gov.uk Department for Resources, Energy and Tourism: www.ret.gov.au Department of the Interior (US): www.doi.gov. Tourism Australia: www.tourism.australia.com Tourism Concern: www.tourismconcern.org.uk Virgin Group: www.virgin.com.
DEFINITIONS AND ASSUMPTIONS Effective demand
In the model of pricing discussed in this chapter, we make a simplifying assumption that we are operating in a perfect market. The stock market is an example of a perfect market – equilibrium price constantly changes to reflect changes in supply and demand.
THE DEMAND FOR RECREATION, LEISURE AND TOURISM PRODUCTS
Changes in the prices of other goods will also affect the demand for the good or service in question. Population trends are an important factor in the demand for recreation, entertainment and tourism.
THE SUPPLY OF RECREATION, LEISURE AND TOURISM PRODUCTS
Technological changes will affect the supply of goods and services in the leisure and tourism sector. Similarly, the effect of a subsidy will be to shift the supply curve to the right.
EQUILIBRIUM PRICE
This can be shown to be the equilibrium by considering other possible prices. 160 as no other price is sustainable and market forces will prevail, causing the price to change until equilibrium is established.
CHANGES IN EQUILIBRIUM PRICE
The original price of $160 will no longer be an equilibrium position since demand has now fallen to 2800 units per day at this price. Supply curve shifts to the left Supply curve shifts to the right Price increase on other goods that could.
THE PRICE MECHANISM IN ACTION Maximum prices and black markets
Anyone for tennis?
1 If a local council decided to build OB tennis courts, what would happen if they decided to make them free.
What am I bid for a week in the sun?
The answer lies in the major tourism-generating countries, where the late booking department of one of the major tour operators resembles a stock trading room with a multitude of flashing screens. Munoz notes that Spain is one of the most important tourist destinations in the world.
So how can the price of the same vacation go up and down like stock and currency prices. 1 Which of the following will shift the demand curve for four-star hotel accommodations in New York to the right. a).
THE DEMAND FOR LEISURE
There are complex forces that will determine whether the income or substitution effect is greater. One possibility is that as income rises, consumers may find more satisfaction in their leisure time, resulting in a strong income effect.
CHOICE OR RIGIDITY?
Some individuals may prefer long hours of free time that they can happily fill with inexpensive or free activities such as reading, watching television, sleeping, or going for walks. Other individuals may have a low boredom threshold and therefore be less satisfied with their free time.
TRENDS IN WORK AND LEISURE
There seems to be a greater work ethic in countries like Germany and Japan than in other countries, especially those with warmer climates.
A LEISURE SOCIETY?
Perhaps the division here is between Mediterranean and Anglo-Saxon traditions, as Juliet Schor (1992) pointed to an unexpected decline in leisure for the latter in the book The Overworked American. It does not allow sufficient time for participation in leisure policy and decisions about what kind of leisure society we want to create.
PRICE ELASTICITY OF DEMAND
It should be noted that the value calculated for the price elasticity of demand will always be negative because an increase in the price of a good causes a fall in demand. Several other studies have been conducted on the price elasticity of demand in the leisure and tourism sector of the economy.
INCOME ELASTICITY OF DEMAND
CROSS-PRICE ELASTICITY OF DEMAND
An increase in the price of good B will have no effect on the demand for an unrelated good, good A. Unrelated goods have zero cross-price elasticity of demand, undertook a study to determine the effects of an increase in the price of gasoline in the request for hotel rooms in the USA.
DEMAND FORECASTING
- Teleworking
- Air Traffic Forecasts for Europe
- continued
- continued
5 Devise a method to estimate the price and income elasticity of demand for cinema attendance, explaining any anticipated problems. 4 Which of the following statements is true. a) Normal goods have a positive income elasticity of demand.
PRICE ELASTICITY OF SUPPLY
On the instantaneous time scale, it is difficult to change supply and therefore supply is relatively inelastic, and a price change from P0 to P1 results in an unchanged supply at Q0 on curve S0. In the short term it may be possible to divert production or capacity from other uses, making supply more elastic.
SUPPLY AND COSTS Leisure and tourism outputs
- Come fly with me
- continued
- Small luxury hotels and economies of scale
- continued
Fixed factors of production are defined as those factors that cannot be easily varied in the short term. 1 Why an organization's average production cost(s) increases when output increases in the short run but decreases in the long run.
PRICING IN THE PRIVATE SECTOR
PRICE TAKERS Perfect competition
Consumers with perfect knowledge of other prices will buy an identical product from one of many other sellers if an individual firm tries to raise prices above the prevailing market rate. It is interesting to note that consumer ignorance (ie lack of perfect knowledge) of other prices means that perfect competition is less prevalent than it might be.
PRICE MAKERS
This confirms the relationship between changes in price, changes in total income and elasticity of demand discussed in Chapter 4. In Figure 6.2, the demand curve is elastic in the range X to Y, inelastic in the range Y to Z and has unit elasticity at point Y.
PRICE SHAPERS
Here, Anheuser Busch made a series of acquisitions to complete the successful horizontal merger of three major competitors with market leader Walt Disney World. One of the goals of persuasive advertising is to create and increase brand loyalty, even when there are no major differences between a company's product and that of its competitors.
PRICING IN THE PUBLIC SECTOR
PRICING AND THE MACROECONOMY
Ups and downs of cross-Channel prices
The English Channel is the name of the sea between the southern coast of England and the northern coast of France. But the other unknown quantity in the calculation is the response of the ferry companies and the ports.
2011: The following prices for summer 2011 reflect the new economic and competitive environment for operators across the Channel. 4 What were the key factors influencing the price in the cross-channel market between 1994 and 2011.
Researching prices and markets Conduct local research in one of the following areas
5 Which of the following is not true? a) Under price discrimination, firms can increase their revenue compared to charging a uniform price. 3 What are the likely consequences of each of the four phases described in the article on fares and service quality.
THE FREE MARKET The benefits of free markets
The reason is simple – rising oil prices made all airlines review their fuel efficiency. The existence of market imperfections will reduce the efficiency of the free market system.
MARKET INTERVENTION
The art of the Ann Arbor City budget by Tom Gantert The debate in Ann Arbor (a US city), where firefighters are being laid off
But the city has become very, very good at moving money in and out of the general fund whenever they want. 2 Do you think the city of Ann Arbor should use public funds to purchase this artwork.
European Commission prohibits acquisition of Aer Lingus by Ryanair
That's the classic argument," says Glenn Thompson, an Ann Arbor resident and longtime critic of city spending. Those people are very good at pouring in and out of the general funds when they want to.”
3 Which of the following is not an approach to prevent abuse of monopoly position. 5 Which of the following is not true for criminal goods. a) Cigarettes are an example of this.
1 Why can leaving the arts to the private sector lead to suboptimal resource allocation. The Wall Street Journal: http://europe.wsj.com/home-page Mackinac Center for Public Policy (USA): www.mackinac.org The Australian Competition and Consumer Council: www.accc.gov.au.
THE COMPETITIVE ENVIRONMENT
Exhibit 8.1 reports on the strategic impact of the Internet on the travel and tourism industry using Porter's five forces analysis (Buhalis & Zoge, 2007). Finally, the overall state of the market is important in determining the relative balance of buyer and supplier power.
THE TECHNOLOGICAL ENVIRONMENT
Exhibit 8.5 and Panel 8 show how technology has been used in the budget part of the hotel industry. At home, video on demand led to the collapse of the video rental industry.
THE POLITICAL ENVIRONMENT
Disney uses virtual reality at its heritage theme park in Washington, DC, so visitors can experience life as a Civil War soldier or slave. The introduction of e-books and e-book readers such as Amazon's Kindle means that users can download books from anywhere in the world through 3G access to the Kindle library.
