Supply in Tourism

The correlation between price and how much of goods or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply: The Supply Relationship

The four basic laws of supply and demand:

1. If demand increases and supply remains unchanged, a shortage will result, leading to a higher equilibrium price.

2. If demand decreases and supply remains unchanged, a surplus will result, thus leads to a lower equilibrium price.

3. If demand remains unchanged and supply increases, a surplus will result, leading to a lower equilibrium price.

4. If demand remains unchanged and supply decreases, a shortage will result, leading to a higher equilibrium price.

Equilibrium Price: The market price at which the supply of an item equals the quantity demanded.

Law of Supply and Demand In free markets, surpluses and/or shortages tend to be temporary and obey the law of supply and demand, since actions of buyers and sellers tend to match prices back toward their equilibrium levels.

Characteristics of Tourism Demand:

Elasticity: Supply of some tourism facilities (eg accommodation) is ‘inelastic’…. i.e. limited or restricted. When supply is limited competing forces may bid the price up. In response to higher offers suppliers may be willing to increase production (extend the hotel, release additional rooms).

Price Elasticity: If the percentage change in demand is greater than the percentage change in price, which caused it, then demand is elastic. If the change in demand is less than the percentage change in price, which caused it, then demand is inelastic. If responsiveness of demand is exactly proportional to the change in price, then elasticity is unitary.

Seasonality: Tourism demand is highly season almost worldwide with weather being critical factor in choosing a