INTRODUCTION TO INTRODUCTION TO HOSPITALITY ECONOMICSHOSPITALITY ECONOMICS

CHAPTER 1

L i Obj tiLearning Objectives

This chapter will help you to:Understand the core terms and concepts used in business Understand the core terms and concepts used in business economics.Appreciate the nature of a firm’s production decisions with respect to what to produce, how to produce and for whom to produce.Recognize the different objectives which different firms may Recognize the different objectives which different firms may pursue and the consequent impact on price and output decisions.

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Meaning of EconomicsMeaning of Economics

Economics is defined as a social science that study the behavior of the society of how they make use of the behavior of the society of how they make use of limited factors of production to satisfy unlimited human wants

Factors of production (land, labor, capital and entrepreneur)Human wants (goods and services)Human wants (goods and services)

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Factors of productionFactors of production

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H N dHuman Needs

• All economic questions arise because we want more than we getwant more than we get– Peaceful and secure world– Clean air, lakes, and rivers– Long and healthy lives– Good schools, colleges, and universities

S i d f t bl h– Spacious and comfortable homes– Time with our friends

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Di i i f E iDivision of Economics

Microeconomics Environment

• deals with the operation of the firm in its immediate marketimmediate market

• involves determination of prices, revenues, costs, employment, etccosts, employment, etc

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Division of EconomicsDivision of Economics

Macroeconomics Environment

• deals with the general economic conditions of the larger economy of which each firm forms g ya part

• involves the impact of political, legal and economic decisions, both nationally and internationally.

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Resource AllocationResource Allocation

Economics is concerned with the efficientallocation of scarce resources. Whenpurchasing raw materials, employinglabour and undertaking investmentdecisions, the manager is involved inresource allocation.

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Economic Q estionsEconomic Questions

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Scarcity, Choice, and Opportunity Cost

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ScarcityScarcity

Scarcity is the problem of infinite humanneeds and wants, in a world of finiteresources. In other words, society does nothave sufficient productive resources to fulfillthose wants and needs; trade-offs aremade of one good against others.

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O t it C tOpportunity Cost

The opportunity cost of any activity is what wegive up when we make a choice In othergive up when we make a choice. In otherwords, it is the loss of the opportunity to pursuethe most attractive alternative given the samethe most attractive alternative given the sametime and resources.

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P d ti P ibilit CProduction Possibility Curve

A production possibility curve is a graph thatshows all of the combinations of goods andshows all of the combinations of goods andservices that can be produced if all ofsociety’s resources are used efficientlysociety’s resources are used efficiently.

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The Prod ction Possibilit FrontierThe Production Possibility Frontier

• The production possibility frontier curve p yhas a negative slope, which indicates a trade-

ff b t d i off between producing one good or another.

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The Prod ction Possibilit FrontierThe Production Possibility Frontier

Points inside of the curve are inefficient.

• At point H, resources are either l d d unemployed, or are used

inefficiently.

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The Prod ction Possibilit FrontierThe Production Possibility Frontier

Point F is desirable because it yields more yof both goods, but it is not attainable given the

t f amount of resources available in the economyeconomy.

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The Production Possibility FrontierThe Production Possibility Frontier

Point C is one of the possible combinations of pgoods produced when resources are fully and

ffi i tl l defficiently employed.

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The Prod ction Possibilit FrontierThe Production Possibility Frontier

A move along the curve illustrates the concept of popportunity cost.From point D, an increase the production of capital goods requires a d i th t decrease in the amount of consumer goods.

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Economic Gro thEconomic Growth

• Economic growth is an increase in the total output of the economy It occurs when a economy. It occurs when a society acquires new resources, or when it learns to produce

i i ti more using existing resources.• The main sources of economic

growth are capital g paccumulation and technological advances.

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Constraints to OptimizationConstraints to Optimization

1. DemandCan not maximize profit with a limit on demand.Can not maximize profit with a limit on demand.

Fix: Create additional demand.

2. GeographyThere are a limited number of resources available for tourist enjoyment

Fix: Build? Create demand for new sites (UNESCO)?Fix: Build? Create demand for new sites (UNESCO)?

3. Technical and/or Environmental ConstraintsLooked at together because technology can overcome Looked at together because technology can overcome environmental issues. True?

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C t i t t O ti i tiConstraints to Optimization

4. Time ConstraintsHow much vacation time do people have?How much vacation time do people have?

5. IndivisibilitiesNot separable into parts; Incapable of being dividedNot separable into parts; Incapable of being divided

6. Legal ConstraintsActions of CVBs, zoning, environmental laws, g,

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C t i t t O ti i tiConstraints to Optimization

7. Self-imposed constraintsConflicting goals need to be reconciledg g

8. Lack of knowledgeIgnorance, lack of research, acceptance of status quo

9. Limits on Supportive ResourcesManagerial talent, workers, construction material, social capital

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END OF CHAPTER 1