Question

The tourist season is slower than normal, causing hotel owners to lower their room prices. As the prices fall, the demand for hotel rooms rises, leading to an increase in the price of hotel rooms. The final price of hotel rooms may be higher or lower than before.

a) True
b) False

Answer 1

The statement given is false; as room prices decrease, demand generally increases, but the final price will typically settle at market equilibrium, where supply meets demand.

Step-by-step explanation:

The statement that hotels lowering their room prices due to a slower tourist season will result in an increase in demand, potentially leading to an increase in room rents, is False. Generally, according to the law of demand, as prices fall, the quantity demanded will increase. However, the final price will typically settle at a point where supply meets demand, which may be higher or lower than the initial price.

In understanding market dynamics, it's essential to consider how prices and demand interact. An increase in the price of a product often signals a shortage, prompting consumers to economize on their purchases. Conversely, a decrease may indicate surplus or lower demand, making the product more accessible to consumers. The market equilibrium is reached when the quantity demanded equals the quantity supplied, at which point prices stabilize.