Our group identified an article that relates to the real-world application “Understanding consumer and firms decisions”, this article is http://www.washingtonpost.com/business/capitalbusiness/local-hotels-struggle-with-low-demand-high-supply/2014/08/03/a2f9d72c-181b-11e4-85b6-c1451e622637_story.html. During 2014, the demand for the local hotels in the Washington DC area fell while the supply was still high. This is due to the government issuing cutbacks to the officials travel to the DC area. The higher hotel room rates in the given situation can be related to the imposition of soda taxes (which increased the soda prices) in Mexico and other EU countries from real world article. As per the supply-demand curve, the hotel room rates should have gone down due to surplus
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In the real-world application, soda tax reduced the purchasing power of the consumer and thereby consumer searched for substitutes. In the additional article, the stimulus is the ‘imposed government cutbacks’ in expenditure, and in turn higher hotel room rates reduced the purchasing power (due to income effect). The hotel occupancy lowered in D.C area, thereby prompting visitors to look for substitutes in the suburbs (substitution effect) and the revenues rose in suburban hotels. Had the businesses lowered the prices of hotel rooms to accommodate the demand (with a new equilibrium price), the hotel stays in D.C area would have been more due to more bookings by regular visitors. The opportunity cost of vacant hotel rooms is losing out the revenues if they rented out even for less. Similarly, the soda tax increases was short lived in Mexico and the opportunity cost of imposing soda tax at consumer level is losing out on revenues that could have been realized by imposing taxes in the supply chain than at retail. That would have had the positive long lasting effect on obesity and
In the real-world application, soda tax reduced the purchasing power of the consumer and thereby consumer searched for substitutes. In the additional article, the stimulus is the ‘imposed government cutbacks’ in expenditure, and in turn higher hotel room rates reduced the purchasing power (due to income effect). The hotel occupancy lowered in D.C area, thereby prompting visitors to look for substitutes in the suburbs (substitution effect) and the revenues rose in suburban hotels. Had the businesses lowered the prices of hotel rooms to accommodate the demand (with a new equilibrium price), the hotel stays in D.C area would have been more due to more bookings by regular visitors. The opportunity cost of vacant hotel rooms is losing out the revenues if they rented out even for less. Similarly, the soda tax increases was short lived in Mexico and the opportunity cost of imposing soda tax at consumer level is losing out on revenues that could have been realized by imposing taxes in the supply chain than at retail. That would have had the positive long lasting effect on obesity and