Question

Demand and supply for tour packages decreases during COVID 19.

Explain, provide examples and analyze how this affects the tour packages market in 400 words

Answer 1

The market for tour packages can be considered as one of the markets which are most adversely impacted by to the Coronavirus outbreak. The COVID-19 spreads through contact, and people are advised (and sometimes forced by regulation in many parts of the world) to stay in their homes. It means that they can use the services fo tour companies as people are not making any traveling or vacation plans for now. This is a negative demand shock for the tour packages and the demand curve for tour packages will shift to the left. The supply of tour packages is also affected as most of the hotels are closed for new bookings and stays, restaurants in all major areas have closed and a lot of employees can not come to work. Thus, the supply of tour packages also shifts to the left. But, we can expect the decline in demand to exceed the decrease in supply so the prices of tour packages will also fall in the new equilibrium. The equilibrium quantity of tours provided is much lower due to the pandemic. It is important to note that these are short-run impacts. In the long run, as the virus subsides, people may start using their pent up demand (it is usually the richer section who use tour packages and their incomes are not affected much by the virus. Since they can not consume right now, they will use their excess savings to consume when the virus subsides) and there can be a large increase in demand for the tour packages.