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3 The market for recreation, leisure

and tourism products

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Learning outcomes

• By the end of this session students should be able to:– identify a market and define the attributes of a perfect

market– analyse the factors that affect the demand for a good

or service– analyse the factors that affect the supply of a good or

service– understand the concept of equilibrium price– analyse the factors that cause changes in equilibrium

price– relate price theory to real world examples

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Definitions

• Effective demand• Ceteris paribus• Markets• Perfect market assumption

– many buyers and sellers– perfect knowledge of prices throughout the market– rational consumers and producers basing decisions

on prices– no government intervention – e.g. price control

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Markets

• A market is a place where buyers and sellers come into contact

• Do all markets have a physical presence?– Ans: No – eBay,

small ads etc.

Patpong night market, Bangkok, Thailand

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• What is this picture?– Exchange rates

• What does it illustrate?– Near perfect markets

• Why?– Many buyers and

sellers– Prices fluctuate freely

according to demand and supply

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The demand for recreation, leisure and tourism products

• Demand and own price

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The demand for recreation, leisure and tourism products

Demand and other factors– Income

• Normal (superior) and inferior goods

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Inferior Goods: Which is the odd one out?

A

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Answer

• A = Amusement arcade, Leysdown, UK

• B = Las Vegas

• C = Ist Class Lounge, Hong Kong Airport

• D = Ist Class Cabin, B.A

• Answer = A – as income rises demand for B,C and D rises

but falls for A

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The demand for recreation, leisure and tourism products

Demand and other factors– other prices

• substitutes and joint demand

– comparative quality/value added

– fashion and tastes– advertising– opportunities for

consumption (e.g. leisure time)

– population– other factors

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Joint Demand

• What’s the connection?• A fall in the value of the Thai Baht can lead to a

rise in the demand for holidays to Thailand (ceteris paribus)

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The supply of recreation, leisure and tourism products

• Supply and own price

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The supply of recreation, leisure and tourism products

Supply and other factors– prices of other goods

supplied– changes in production

costs– technical

improvements– taxes and subsidies– other factors (e.g.

industrial relations)

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Supply and Costs

• How does no frills Ryanair cut costs compared to full service QANTAS?

• What effect does this have on its supply curve?– Shifts to the right

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Equilibrium price

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Changes in equilibrium price

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S

D1D2

P1

P2

P

Q0

A leftward shift in demand (D1>D2) causes price to fall (P1>P2).

What factors would cause a fall in demand for a UK hotel?

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Changes in equilibrium price

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Supply shifts to left

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The price mechanism in action

• maximum prices

• black markets• queues

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Markets in action• A queue is an

indication of a disequilibrium between demand and supply

• Arsenal FC: Ticket touts can charge a lot more than official prices

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Review of key terms• Effective demand

– demand backed by cash.• Ceteris Paribus

– all other things remaining unchanged• Perfect market

– many buyers and sellers, rational players, perfect knowledge, no interference.• Normal good

– demand rises as income rises (also called superior good).• Inferior good

– demand falls as income rises.• Substitute

– good that can replace good in question• Complement / Joint demand

– good that is used with the good in question• Equilibrium price

– where demand equals supply.

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3 The market for recreation, leisure

and tourism products:

The End