Question
In: Economics
Beach resorts typically raise their prices during the summer months and yet more people book rooms at those times.
Beach resorts typically raise their prices during the summer months and yet more people book rooms at those times. Is this a violation of the law of demand? If so, why? If not, how would you be able to explain what is happening with a supply and demand model (i.e. please explain in words which curve(s) might be changing)?
Solutions
Expert Solution
No it is not a violation of the law of demand. The law of demand states that as the price of good rises, its quantity demanded will fall. But here, it is not the price which is affecting the quantity but the other way around. During summer months, more and more people go to the beach resorts for vacation and the demand for beach resorts increases. Thus, the demand curve shifts to the right. The supply curve remains the same as it is not possible to open a resort just for summer months. Thus, at the new point of equilibrium both the equilibrium quantity of rooms and the equilibrium price will rise.
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