Supply and Demand
Demand for a product indicates the relationship between the price of the product and the quantity demanded, or the amount of a particular product that consumers would buy at a specific price level. Supply represents the relationship between the price of the product and the quantity supplied, or the quantity that producers are willing to sell at a given price. The change in quantity demanded or supplied is caused by a shift in price; however an increase or decrease of the whole demand or supply can only be cause by non-price factors. Thus, the demand for vacations in the theme park can be affected by the availability of substitute products and the price of the complements or it may alter in response to the change in the disposable income of the target customers. On the other hand, supply may be affected by the introduction of additional legislative barriers for theme parks, unavailability of suppliers for new equipment or unusually bad weather conditions, which make it hard to operate the park (Taylor & Weerapana, 2009).
Price elasticity measures the degree to which consumers change the quantity of the product purchased as the price for this product changes. It is calculated as a percentage change in the quantity of the product demanded divided by the price change for this product. If the absolute value of elasticity is above 1, than demand is price elastic. If elasticity falls into the range between 0 and 1, the demand is price inelastic (Taylor & Weerapana, 2009).
Price elasticity can be affected by a lot of factors, such as the number of substitutes in the market, the necessity of the product, the time period and the proportion of the total budget spent on the product. Thus, spending vacations in a theme park is likely to have high price elasticity, due to the fact that it is not a necessity for the majority of people. Therefore, the vacation can be easily forgone, once its price increases (Taylor & Weerapana, 2009). The high price elasticity of a vacation in a theme park can be also connected to the high price of this product, relative to the budget of an average person. A small increase in price for this product will significantly impact the financial situation of an individual. Therefore, people will try to switch to other alternatives once the prices for vacations go up. Moreover, price elasticity for a vacation in a theme park is largely affected by the number of substitute products available in the market. When people plan their leisure time, they face numerous alternatives, such as a vacation in the countryside, visit to the Zoo or a trip to the tourist attractions in the neighbourhood.
The price and availability of the complements may also have an effect on the price elasticity of demand. Thus, if the price of the bus, which brings people to the park, increases, the quantity of vacations in the park purchased is likely to decline and vice versa. If the restaurants in the park increase prices for their service, people will not go to the theme park as often. Hence, it is hard to predict the level of demand and supply for a particular product, such as a vacation in a theme park, because it is constantly altered by numerous factors.
References
Taylor, J. B., & Weerapana, A. (2009). Economics. (6th ed., pp. 52-70). Boston, the United
States of America: Houghton Mifflin Company.
