Answer:
The theory of elasticity of demand is based on the concept of marginal utility, which is the additional satisfaction or benefit that a consumer derives from consuming one more unit of a good or service. When the marginal utility of a good or service is high, the demand for it is considered to be elastic, meaning that small changes in price or income can lead to large changes in the quantity demanded. Conversely, when the marginal utility of a good or service is low, the demand for it is considered to be inelastic, meaning that large changes in price or income are required to lead to small changes in the quantity demanded.
In the case of hotel rooms, the elasticity of demand can be influenced by a variety of factors, including the location of the hotel, the quality of the rooms, and the availability of alternative accommodations. For example, a luxury hotel located in a popular tourist destination may have a relatively inelastic demand, as the high quality and unique location of the hotel makes it difficult for consumers to find substitutes. On the other hand, a budget hotel located in a less popular area may have a relatively elastic demand, as there are many alternative accommodations available at similar prices.
Additionally, it would be important to consider the cross-price elasticity of demand, which measures the responsiveness of demand for a good or service to changes in the prices of related goods or services. In this case, if the prices of other hotels in the area went up, the Rivers Motel could see an increase in demand for its rooms.
Furthermore, the income elasticity of demand, which measures the responsiveness of demand for a good or service to changes in consumer income, would also play a role. In this case, if the average household income increases by 20% from $50,000 to $60,000 per year, it is likely that the quantity of rooms demanded at the Rivers Motel would also increase, as people have more disposable income to spend on luxury goods and services such as hotel rooms.