Question

Question 1 12.5 pts Sugar Bay is an exclusive resort on a large popular vacation Island in the Caribbean. It sells subscriptions to guests which gives them priority booking on dates for vacations with many amenities included (massages, boat rentals liquor packages, etc.). Others are allowed at the resort if rooms are available, but they do not receive the amenity package. The resort has always been able to accommodate both the subscribers and the other guests. In 2018 a major storm destroyed many of the resorts on the island as well as much of Sugar Bay. In rebuilding the management decided to raise rates in for both groups in 2019. Now at the end of the season, it is studying the impact of raising! room rates for both groups from $345/night to $425/night. As the price of rooms increases from $345 to $425, what is the price elasticity of demand for subscription holders. Use the midpoint method in your calculations and round all answers to the hundredths place. Show your work here. Put your answer into the next question. Year Price Quantity Demanded subscription Quantity Demanded non-subscription 2016 $225 400 rooms 165 rooms 2017 $295 320 rooms 90 rooms 2018 $345 305 rooms 80 rooms 2019 $425 295 rooms 55 rooms

Answer 1

1)

The midpoint method to calculate the price elasticity of demand is given as

2-Q1 Q1+ Q2 ép = P2 - P1 P1+ P2

Price elasticity of demand for subscritpion holders = 295-305 305 + 295 $425 - $345 $345 + $425

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2)

Price elasticity of demand for subscription holders = - 0.16

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3)

The correct answer is :- Price elasticity of demand

Explanation : - Price elasticity of demand is the ratio of the percentage change in quantity demanded to the percentage change in price.

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4)

55 - 80 80 + 55 Price elasticity of demand for non subscribers = 3 $425 – $345 $345 + $425

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5)

Price elasticity of demand for non subscribers = -1.78

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6)

The correct answer is :- Price elasticity of demand

Explanation : - Price elasticity of demand is the ratio of the percentage change in quantity demanded to the percentage change in price.

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7) The correct answer is false

Explanation : - The price elasticity of demand for subscription holders is -0.16 whereas for non subscribers it is -1.78.

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8)

The price elasticity of demand for subscription holders is inelastic which means that percentage change in quantity demanded is less than the percentage change in price. The reason it is inelastic because subscription holders exhibit less sensitivity to price changes.

The price elasticity of demand for non subscription holders is elastic which indicates that the percentage change in quantity demanded is greater than the percentage change in price. Non subscribers are highly sensitive to price changes compared to subscribers, hence we observe the difference in elasticity between the two types of guests.