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L6:Concepts of Supply for Recreation and Tourism

L6:Concepts of Supply for Recreation and Tourism. Concepts of Supply for TOR. The important of CS in TOR: Costs and profits Comparison Facilities and services for the TOR program; Comparing the ‘maintenance and re-development costs with the expectation profits

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L6:Concepts of Supply for Recreation and Tourism

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  1. L6:Concepts of Supply for Recreation and Tourism

  2. Concepts of Supply for TOR • The important of CS in TOR: • Costs and profits Comparison • Facilities and services for the TOR program; • Comparing the ‘maintenance and re-development costs with the expectation profits • Decision making process (private or public) • Investment and return involvement • Company profits and costs • A decision; ‘continue or stop’ TOR program

  3. Concepts of Supply for TOR • Law of Supply (Pn): • Direct relationship between the Price (P) and Quantity (Q) of TOR facilities and services which related to production, cateris paribus • The Supply Curve • Positive slope • Direct relationship between price (P) and quantity (Q) of supply • TOR Developer or producer; higher price, supply increase; production costs will increased with the quantity increased (in short term)

  4. Concepts of Supply for TOR • Determinants of Supply • Change of Pn; Supply curve ‘shift’ to right or left • Primary determinant; production costs • Other determinants (other variables): • Availability of Public funds • Quality of location • The number of production • Technology • Input price (labors, manpower, etc) • Weather

  5. Concepts of Supply for TOR • Adaptability Factors in Pn: • Profits • Market freedom; to enter and out • Short term and long term

  6. Concepts of Supply for TOR Elasticity of Supply Elasticity of Pn is based on the price Estimation of Pn (TOR good or product) can be obtain by change in Pm with the elasticity model % change in quantity of supply (TOR) when the price is change by 1%

  7. Concepts of Supply for TOR • Formula • % changes in quantity of supply/% changes in price • Example; when the price of room accommodation in TN resort increased from RM160 to RM180; room supply increased from 3200 to 3600 (total of room supplied per year) • ∆Q =(400/3200)*100 = 12.5 • ∆P = (20/160)*100 = 12.5 • Elasticity of supply =12.5/12.5 = 1

  8. Concepts of Supply for TOR • Profit Factor • Rate of return to investor at normal profit • Normal profit; The profit level that are requires to obtain the investment or resources to continue the business • Economics/excess profit; When the revenue over the normal profit • The ability to get the excess profit for the investment attraction to join in TOR industry or business activities

  9. Concepts of Supply for TOR • Market Freedom factors: • MF means a firm (e.g. travel agency) is free to enter or out to TOR industry without any barrier/constraint. If they are free to enter, a firm will join the industry when the opportunity to get the profit is available. • When the number of firm increase, the profit will reduce to normal profit. • The market freedom is very important in order to make sure the industry strength, helping the industry modification with reducing the competition, then the price can be increase and enough to get the normal profit

  10. Concepts of Supply for TOR • Short and long terms factors: • Modification period • In short term, investment on capacity and output have been made, a changes is difficult to make because of some of the input cannot be change (fixed cost); • Pn straight and Pn is not influence by the price. • In long term, firm or agency TOR can make some modification which are base on the market , no barrier on resource use level, firm can use the efficiency of input combination to produce output • Pn curve become flatter and price shows the cost of supply (in perfect competition)

  11. Concepts of Supply for TOR • Changes in Pm and Pn will affects the price and quantity in the market • Impacts to price and quantity are depends on the elasticity of Pm and Pn curve • In TOR industry ‘seasonal factor’ always giving impact to price variety in TOR product such as accommodation, raw material etc • Nevertheless, this changes happen because of the changes in Pm and Pn are ‘fixed pattern changes’ • But we make ‘average’ of the changes impacts within a year happen • Study on variety in price and output we can determine the ‘cause of changes’ in Pm and Pn changes. • Example; Hotel supply during holiday?

  12. Concepts of Supply for TOR • Accommodation facilities • Experience and previous information; Pm on accommodation will be increased during school holidays. • Therefore, the price of accommodation will be increase. • In this case, P and Q will be shift to the same direction.(Pm and Pn curve) • Conclusion: a change in price and quantity are influences of the shifts in Pm curve • This conclusion can be accept because the quantity of accommodation (number of room) cannot be changes within a year)

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