BOTSWANA ACCOUNTANCY COLLEGE DEVELOPMENT IN BOTSWANA BY THABISO TLHAOLANG THE IMPACTS OF TOURISM A RESEARCH PROJECT SUBMITTED TO BOTSWANA ACCOUNTANCY COLLEGE IN PARTIAL FULFILMENT OF THE BRIDGING PROGRAMME INTERNATIONAL TOURISM MANAGEMENT FRANCISTOWN, BOTSWANA YEAR: 2013 Contents STATEMENT OF ORIGINALITY I hereby declare that this submission is my own work and to the best of my knowledge, any information which is not mine has been acknowledged by the means of citation and references.
Signature Date I would like to express my very appreciation to my lecture for her valuable and onstructive suggestions during the planning and development of this research project. Her willingness to give her time so generously has been very much appreciated. I would also like to thank everyone who has helped me in completing this project. EXECUTIVE SUMMARY The goal of this project was to discuss the determinants of price elasticity of supply and demand in the tourism industry, how the demand for tourism products reacts with the rice in price and how suppliers of tourism products react also to rise or decline in price for this products.
Through the aims and objectives of the project, I as able to find out that tourists tend to react on the long run than on the short run when it comes to an increase in price because on the short run there would not be anything they can do to avoid the costs of rise in price so in the short run tourists are inelastic but on the long run they are elastic since now they would have found means of avoiding the costs they get in due to rise in price.
Suppliers also tends to be more elastic in the long run when it comes to rise in price of the goods or products they are supplying due to the fact that a rise in hotel price means that, for the supply to aximize profit he/she needs to expand his/her hotel especially if they have fewer rooms and the supplier does not have the space to use for expanding the hotel. For that time the supply will be inelastic since they cannot supply more accommodation but on the long run, supplies can acquire more land so as to supply more accommodation and try to maximize profit.
The recommendations to this project is that the government should increase prices of goods consumers need on their lives because no matter the price increase, consumers a still going to purchases the goods ince their price elasticity is inelastic unlike the other products like most of the tourism products, if the price increases they may decide not to purchase the product since it’s not that important to their lives.
Products which are price inelastic to demand bring more revenue than those which are price elastic, so if the country focuses on products which are inelastic to demand then revenue for the country can increase. TASK DESCRIPTION Economics is a social science that’s seeks to understand how different societies allocated scarce resources to meet the unlimited wants and needs to its members. As ith any social science, economics is concerned with human behavior, behavior of individual and interaction among these individuals.
By Robbins (1932) Economics is essential to understanding the tourism industry. What determines the price of elasticity when it comes to goods and services on which tourists spends their income on, to see the attitude of tourists when it comes to their ability and willingness to buying of tourism products at different prices during any period of time. How It is useful to distinguish between the demands for travel to a particular destination and the demands for a tourism related products.
Economics also helps us to see the attitude of supplies when it comes to price change of tourism products, especially when it comes to tourism products which cannot be reproduced like the Okavango Delta, how they can try to maintain a rise in demand since they cannot produce more deltas. According to Lipsey & Chrystal, (2011) Price Elasticity of Demand (PED) is the percentage change in demand divided by the percentage change in the price of a good.
It refers to the measure of the sensitivity of one variable to another. Demand elasticity measures how much the quantity demanded by a customer changes when he prices of product or service is increased or decreased. It is measured by; They continue to say that, price elasticity of supply (PES) is defined as the percentage in price that brought it about. Its formula is; 1. 1 AIMS To find out; The factors which determine price elasticity of supply and demand. 1. 2 OBJECTIVES Are to; Calculate price elasticity.
Link price elasticity to tourism. Illustrate with graphs price elasticity of supply and demand. The researcher used secondary research method which is collecting data which has already being collected by other people before me. It is a technic used when performing market research. Advantages of this research method are that there is ease of access and low cost to acquire as it allows the researcher to access valuable information for little or no cost to acquire.
While the disadvantages are that there is incomplete information, the researcher may not get the full version of the research to get full value of the information because may research suppliers offer free portions of their research and then charge expensive fees for their full reports. 2. 0 FACTORS DETERMINING PRICE ELASTICITY OF SUPPLY 2. 1 TIME PERIOD If the price of a good rises and the producers/ suppliers, have enough time to make djustment in the output, the elasticity of supply will be more elastic but if the time period is short and the supply cannot be expanded after a price increase, the supply is inelastic.
For example if more people want to book into Gaborone Sun Hotel but it has a low number of rooms then supply will be inelastic because there is nothing they can do for that particular time but as time goes on they can expand if they have enough space so as to increase supply of accommodation. This is illustrated by Figure 1 . 1, which shows that as price rises from P300 to P400 which is 29%, quantity upplied will also increase from 200 to 250 which is 22%, quantity supplied does not increase that much because supplies do not have the means to increase their output in the short run.
The inelasticity then becomes 0. 76 pnce (P) 300 200 150 200 250 300 Quantity Fig. 1. 1 2. 2 FACTOR MOBILITY If the factor of production can be easily moved from one use to another, it will affect elasticity of supply. The higher the mobility of factors, the greater is the elasticity of supply of goods and vice versa. For example, if a large number of tourist go for a tour guide at Mokolodi Game Reserve and you have a fewer number of tour guides, that eans the price is going to be inelastic because other staff members do not know Fig. l . 400 10 20 30 40 Quantity The figure 2 above shows that even if price increases by 29%, the quantity supplied still stays the same because there are no more tour guides you can supply so the price elasticity of supply comes O. 2. 3 AVAILABILITY OF INFRASTRUCTURE FACILITIES If infrastructures facilities are available for expanding output of a particular good in response to the rise in price, the elasticity of supply will be more elastic. For example, if a rise in price for hotel room’s increase and you has the space to expand to expand our hotel in response with the rise in price then the supply will be elastic.
As shown by the fg. 3 below indicating that as price rises by 22. %, quantity supplied also increases by 50% because of infrastructure and its elasticity then becomes 2. 3. (P) 400 50 Fig. l . 3 2. 4 NUMBER OF PRODUCES More producers mean that the output can be increased more easily. Thus supply is more elastic. For example when there are more hotels like there are in Botswana that means people can choose from a variety, so the price elasticity of supply is then elastic. Fig. illustrates this as it shows that as quantity supplied increases by 67% ue to a large number of hotels, price also increases by 29%, because of competition in number of suppliers producing the same product and the elasticity ends up being 2. 3. 30 Fig. l . 4 2. 5 IMPROVEMENT IN TECHNOLOGY Where there is a rapid improvement in technology, price elasticity of supply of such good will be more elastic as compared to industries where there is not much improvement in technology.
For example if hotels improve in technology like setting up free Wi-Fi internet, upgrading their conference rooms like adding AV Systems and Audio Visual equipment’s that drive for performance so as to provide top of the class upply. This is shown by Fig. 5, as quantity supplied increase by 50% from 30 to 40, price also increases by 40% from P200 to P300, due to an upgrade in technology supplied and its elasticity is 1. 25. FIG. 5 PRICE (P) Quantity 3. 0 FACTORS DETERMINING PRICE ELASTICITY OF DEMAND 3. 1 DEMAND FOR LUXURY GOODS Demand for luxury goods tends to be more elastic than the demand for necessities.
For items that are essential, you tend to be less responsive to changes in price. An example of this would be the demand for traveling for leisure tends to be more price elastic than the demand for electricity. This is shown by figure. l, which indicates that as price rises for luxury goods from P60 to PIOO by 50%, demand decreases from 50 to 20 by 86% and price elasticity then becomes 1. 72. 20 3. 2 INCOME Tourists tend to be more elastic in regards to price changes for items make up large percentage of their income.
For example, if the price of a pack of gum goes up by 10%, a tourist would not even notice but on the other hand, if the price for a tourist package to Europe increases by 10%, tourists would probably reconsider the purchase of the package since it would be taking a large percentage of their income nd that means its elastic so they will be they will change to a cheaper tourist package. And this is shown by the Figure. 2, if the price for international package increases its price by P300 from P500 which is 50%. Demand will then decreases from 40 to 20 which is 67% since the package will be taking most of their income.
The elasticity will be 1. 34. Quantity Fig. 2. 2 3. 3 TIME FRAME Tourists tends to be more responsive to changes in price in the long run, if the price for transportation to tourism destination increases, tourist will still travel and the rice for will be inelastic in the that short time because there is nothing they can do but as time goes on the demand will be elastic since tourist will find cheaper ways of traveling. This is shown by Figure. 3 below which shows that if the price for transportation increases to P500 from P300 and the change in price is 50%, the demand will reduce but not that much it will reduce from 40 to 35 which is 13. %. The price elasticity will be 0. 266. Fig. 2. 3 (P) 300 35 3. 4 ADDICTIVE OR HABITUAL If a person is addicted or habituated to a commodity, its demand is inelastic. For xample a gambler, even if the price for chips used for playing blackjack increases he/ she will still play because they are addicted to gambling. Figure. 4 below illustrate this by showing that even if the price increases from P300 to P400 which is 29%. the demand will still stay at 40. And price elasticity of demand will be O. Fig. 2. 4 10 40 Leaves the quantity demanded unchanged 3. SUBSTITUTES OF THE COMMODITY AVAILABLE If the substitutes of the commodity are available its elasticity is higher. If there are no substitutes available the elasticity is less elastic. For example if price for booking into otels rises, tourists can substitute for lodges. And this is explained by the fgure. 2. 5 below, it shows that as prices to P670 from P500 its percentage becomes 29% because there are substitutes the demand will reduce to 35 from 50, demand percentage is 35% and price elasticity of demand will be 1. 2. 670 Fig. 2. 5 4. CONCLUSION Price elasticity of demand is inelastic to products tourism need on their daily lives or to products they cannot survive without, products like foods and clothes, even if the price for food or clothes increases demand is still going to be there since they need hem but for tourism products, if the price increases tourists tends to be elastic, they will find other means of acquiring the tourism product so as to avoid the costs and if there isn’t a way to acquire the tourism product, they can Just leave the product since they do not need it that much because they can still survive without the products.
Suppliers also tends to be elastic on the long run, when a rise in price occurs especially for a rise in price of accommodation and the supplier has fewer rooms but wants to maximize profits, for that time the supply will be inelastic since the supplier oes not have the space to expand the hotel but if they have the tools for expansion then in the short-run price elasticity can be elastic. For products which cannot reproduced like the Okavango Delta the supply is inelastic because even if there is a more deltas. 5. RECOMMENDATION The government should increase prices more often for products which are a necessity for consumer and also when it comes to tourism products which cannot be reproduced since they are the ones which bring more revenue than those which are man-made. Consumers will still buy products they need on their daily lives like food and clothes. Natural tourism products am referring to are products like the Okavango Delta, if demand rise for the Okavango delta, the government cannot produce more Okavango deltas so what they should do is increase price of the delta.
Revenue will be increased and at the same time reduce the high demand for the delta because now not everyone will be able to afford the prices. The tourism industry should minimize the supply of perishable goods and they should supply non-perishable so as to keep supply flowing because perishable goods to not last. 6. 0 REFERENCE Dawson, C. (2009) Introduction Research Methods. 4th edn. Spring Hill House: How To Books. Lipsey. Chrystal. (2011) Economics. 12th edn. Oxford University press Inc. : New York Economics Revision Notes. Online] Available at: http://www. dineshbakshi. com/ib-economics/microeconomics/161- revision-notes/1709-factors-affecting-price-elasticity-of-supply (Accessed:17 November) Economics online [Online] Available at: http://economicsonline. co. uk/competitive_markets/ Price_elasticity_of_demand. html (Accessed: 20 November) Price Elasticity of Supply with examples. [Online] Available at: http://www. slideshare. net/shahiraz/price-elasticity-of-supply-with- examples (Accessed: 18 November) Robbins, L. (1992) The nature and significance of economics science.
Umesh Dawson [Online]. Available at: Available at: http://www. oocities. org/umesh_dawson/ Html_Files/Meaning. htm (Accessed: 03 December) What is secondary Research? [Online] Available at: http://www. ask. com/question/what-is-secondary-research (Accessed: 04 December) Marketing Research. [Online] advantages-and-disadvantages-of-using. html? m=l 7. 0 BIBLIOGRAPHY Fisher. (2007). Elementary Principles of Economics. Cosimo Classics: New York Friedman, M. (19953) Essay in Positive Economics Hall, C. I. (2002) Introduction to Economic Growth: Norton & Co