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Hotel Building High in New York City
Subject Comparative statics
Topic Equilibrium
Key Words Occupancy rate, price, glut
News Story

New York City has the highest hotel occupancy rate in the nation - 83.2 percent, up 4.7 percent in the last year. This reflects the 28 percent growth in visitors since 1995. The average hotel room price is $189.33 this year, up from $175.98 a year ago.

In response, twenty hotels are under construction or have recently been completed. They will add 4,700 rooms to the existing total. A wide variety of hotels are opening. Some will charge high prices, such as the Bryant Park, which will have 24-hour butler service, 100% cashmere throw blankets, 400-thread-count Egyptian cotton sheets, and high-speed Internet wiring. Others will be budget hotels. For example, the new Red Roof Inn near the Empire State Building offers some rooms at $89.99. Complimentary continental breakfast, free local calls, and in-room coffeemakers are also provided.

Lodging experts do not expect the additional rooms to cause a glut. The number of visitors keeps on growing.

(Updated November 1, 2000)

Questions
1.

Draw a supply and demand diagram of the market for hotel rooms in New York City. Show the equilibrium price in 1999. Mark the quantity of rooms occupied.
a) Show the effect of an increase in the number of visitors on the equilibrium price of a hotel room and the number of rooms occupied.
b) Illustrate the effect on the equilibrium of the twenty new hotels opening.
c) What effect will a continued increase in visitors have on your answer to (b)?

2. The new hotels vary in amenities.
a) Why will the demand curve for rooms at the Bryant Hotel intersect the supply curve at a very high price? Refer to the determinants of the demand curve.
b) Again with reference to the determinants of demand, explain why providing free local calls, continental breakfast, and in-room coffee helps shift the demand curve for rooms at the Red Roof Inn to the right.
Source Kitty Bean Yancey, "In NYC, more rooms for a night at any price," USA Today, October 6, 2000.

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