Question

 

When you decide to go and have a dinner with your friends in a world class hotel such as the Langham hotel or Coronado Beach, perhaps you would be horrified by the high price you would have to pay for a bottle of soft drink such as Coca Cola or Pepsi Cola or wine or even bottled water. Perhaps you begin to ponder why the same commodity that you can get at a supermarket at one tenth the hotel price is going for such an astronomical price at the hotel.Of course, such facilities will have a warning such "you are not allowed to bring in your own food or drinks" posted at appropriate places in the facility for the attention of customers.In another scenario, you enter a designer shop to buy clothes with a designer label for a friend on their birthday or on Valentine day and you reckon the clothes are so much expensive compared to similar own brand clothes from a clothing or chain store, even though they may cost a similar amount to produce.

Questions

Using your knowledge in basic economics, especially of the concept of demand and supply, attributes of a competitive market and price elasticity of demand, briefly discuss the following

A. Why may a hotel charge such very high prices for wine, soft drinks or even bottled water and yet quite reasonable prices for food and still get away with such high prices?

B. Why are designer shops able to price their clothes so very expensive and yet still get clients even though similar clothes that are available in a supermarket chain shops cost pretty much less?

 

Answer 1

A. The demand for wines, soft drinks is quite high now days, nearly half of the population consumes these liquids at a very high rate.

We have already studied that demand is directly proportional to price, since demand for a product rises the price automatically rises because it a general thing that the person having choice for a particular product will never stop consuming it no matter what the price is.

Same is the case with five star hotels, the wines are going to be consumed no matter what the price is, therefore the prices are kept high.

Anybody visiting a five star for having food will definately drink water and they do not allow water from outside so they have to buy it no matter how expensive the bottle is.

B. The designer clothes are very much in demand ,

according to the law, as the demand increase the price also increase.

So if the demand for designer clothes is increasing , the price of these clothes will surely increase as the people who has liking for this particular product will buy it for sure and in this case there is no need to decrease the price.