Topics: Price elasticity of demand, Consumer theory, Income elasticity of demand Pages: 4 (1164 words) Published: March 2, 2015
The Price elasticity of demand is shown in Price Sensitivity of costumers in luxurious Hotels in the US. The percentage change in demand for a particular good or service is divided by the percentage change in the price of that good or service. The most important determinants of the price elasticity of demand for a good or service are the availability of substitutes, the importance of the item in household budgets, and time.

To determine how a price change will affect total revenue, economists place price elasticities of demand in three categories, based on their absolute value. If the absolute value of the price elasticity of demand is greater than 1, demand is termed price elastic. If it is equal to 1, demand is unit price elastic. And if it is less than 1, demand is price inelastic. Therefore in that case it is price inelastic for high-income consumers. (Decision, D. C. 1956) Figure 1and 2. Income elasticity shows the percentage increase in the demand for a given good as a result of a percentage increase in income. Clearly the statement Tran is making on the relationship of income on the elasticity in US hotels is shown and demonstrated. Here the theory is confirmed.

Most of the time, income elasticity for normal goods and basics products such as necessities is smaller for luxury goods or superior goods. A decrease in income will not reduce for basics needs such as electricity just as much as for holiday trips. Often in that case the income elasticity of a good is reduced when the income increases. In sort term, the income elasticity of the household budget is equal to 0. While the changes in consumptions demand in goods increase .In the long term, this would not be the case because many variables could come interfering the budget and so vary (Fog, 1992).

The demand is affected by the ability of a given consumer to buy .The purchasing power income is not to be neglected. Therefore in that specific case the consumer is an upper scale class person and...

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Salvatore, Dominick.(1993), Managerial Economics in a Global Economy. Second edi-tion. McGraw-Hill Book Co.
Tran, X. (2011). Price sensitivity of customers in luxurious hotels in U.S. E-Review of Tourism Research, 9(4), 122–133.
Decision, D. C. (1956). Demand and Elasticity, p103–122.
Diego, S. (2009). Price elasticity of demand, (619), 4–7.
Fog,B.(1992), Prispolitik. 8. udgave. Handelshøjskolens Forlag
Figure 1 Inelastic demand
(Dupont, 1956)
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