Tourism's Economic Impact - Tourism: Principles, Practices, Philosophies - page 318

TABLE 14.7 Relationships between Price Elasticity and Total Revenue (TR)

Elastic Demand
e

Unitary Elasticity
e

Inelasticity Demand
e ð jj> 1 p Þ ð jj¼ 1 p Þ ð jj< 1 p Þ

Price rises TRfalls No change TRrises

Price falls TRrises No change TRfalls

only is undue glamorization of tourism unwise because it usurps this position, but such a strategy
only speeds up the process of dependence on tourism, which, as discussed earlier, can be itself
undesirable. Moreover, investment in tourism at the cost of health and education programs also
slows down the rate at which the local population is assimilated into the modern market
economy of the country. Under certain circumstances, it may actually retard development rather
than enhance it.
The conclusion is that although tourism has tremendous potential as a tool in economic
development, it is no panacea. Governments should attempt to optimize (not maximize) the bene ts
that tourism provides, being ever mindful of the costs that it can impose. It should be noted also that
the probability and the intensity of the economic costs of tourism are greater for developing nations
(or regions) than for wealthy ones. Wealthy nations, by de nition, possess robust economies that can
more easily absorb the cost of tourism. Typically, such economies are well diversi ed, and government
investment programs are not so central to development efforts.
The social bene ts and costs of tourism should be viewed similarly. Although the host community
seeks to maximize the bene ts, it must weigh these against the social costs. The social costs are
likewise higher in both probability and magnitude when tourism is being considered for development
in an area that still possesses a traditional social structure.

Quantity Demanded and Price Elasticity

For some products, even a large change in price over a certain range of the demand curve results in
only a small change in quantity demanded. In this case, demand is not very responsive to price
(Table 14.7). For other products, or for the same product over a different range of prices, a
relatively small change in price elicits a much larger relative change in quantity demanded.
Demand can be classi ed as inelastic or elastic on the basis of the relative responsiveness of
quantity demanded to changes in price. Speci cally,

ofdemandmaybede ned as
the percentage change in demand resulting from a given percentage change in price. Most tourism
products are price elastic. During 1992, when U.S. airlines began offering half fares, the number of
air travelers increased to record-high levels.

price elasticity

Income Elasticity of Demand

As income rises, more travel is demanded at any given price. Thus, the relationship between income
and demand is positive. The responsiveness of demand to changes in income is called income

elasticity of demand. It is de ned as the percentage change in quantity demanded in response to a
given percentage change in income, price remaining unchanged.

TOURISM SATELLITE ACCOUNTS

As can be seen from the beginning of this chapter, tourism makes a major economic contribution to
the world economy. Despite this economic signi cance, tourism managers have for some time been