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Chapter 4: Problem 6

A hotel chain advertises its hotels as "The Best Hotels You Can Find Anywhere." Does this ad have anything to do with elasticity of demand? If so, what?

Short Answer

Expert verified
Yes, the advertisement does have to do with the elasticity of demand. By positioning itself as 'The Best Hotels You Can Find Anywhere', the hotel chain might make the demand for its hotels more inelastic. This is because convinced consumers would likely be less sensitive to changes in prices.

Step by step solution

01

- Understand the Advertisement

The advertisement is making a strong claim about the quality of the hotels. The claim is that these hotels are 'the best you can find anywhere'. This implies that the hotel chain is positioning itself as a premium or luxury offering.
02

- Consider the Impact on Elasticity of Demand

The positioning in the advertisement would likely make the demand for these hotels more inelastic. This is because consumers who are convinced that these are indeed the best hotels would likely be less sensitive to changes in price. They are not only paying for the hotel but also for the, perceived, best hotel experience available which they could not get elsewhere.
03

- Elasticity of Demand and Advertisement

Thus, the advertisement has something to do with elasticity of demand. Specifically, such an ad could serve to make demand more inelastic. This is because it aims to convince consumers of the superior quality of the hotel, and this perception of high quality might make them less sensitive to price changes.

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