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Introduction to Economics of Tourism


Title: Chapter 1 Author: BBA Last modified by: New Created Date: 5/20/2000 4:02:24 AM Document presentation format: On-screen Show (4:3) Company: UTCC – PowerPoint PPT presentation

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Title: Introduction to Economics of Tourism

  • Introduction to Economics of Tourism

Assistant Professor Dr. Chanin Yoopetch
Course Objectives
  • After successful completion of this course,
    students will be able to
  • Understand the concepts of principles of
  • Understand the factors affecting tourism at the
    macroeconomic and microeconomic levels.
  • Understand the relationship between travel and
    tourism-related organizations and economic

  • Tribe, John(2005), The Economics of Recreation,
    Leisure Tourism, Boston Elsevier
  • Mankiw, N. Gregory(1998), Principles of
    Economics, Fort Worth, Tex The Dryden Press
    (better to find the newest version)

  • Two group assignments/ one before midterm and one
    before final exam.
  • 1st assignment
  • Write a report with analysis and make a
    presentation of the assigned journal articles
  • including provide supports or argues the points
    made in the articles.
  • Finding additional information to provide clearer
    presentation is encouraged.

  • 2nd assignment
  • Select the organizations in Thailand (e.g.
    hotels, spa, etc.)
  • Analysis
  • How economic factors affect tourism-related
  • How should they prepare for political, social,
    and economic crisis?
  • How should they solve economic problems?
  • Progress report/Report/Presentation

Overview of Tourism and Economics
  • Effective tourism management needs economic
  • Economic growth relies on tourism industry.
  • Understand economy helps tourism-related
    organizations effectively manage their businesses
    and activities.
  • Exchange rate (Ex. Weak Yen helps boost tourism
    in Japan.)
  • Economic situations in other countries. (Ex. Poor
    Thai economy leads to more visitors? Political
  • etc.

Learning outcomes
  • By the end of this session students will be able
  • understand the scope of recreation, leisure and
    tourism and their interrelationship
  • explain the basic economic concerns of scarcity,
    choice and opportunity costs
  • outline the allocation of resources in different
    economic systems
  • explain the methodology of economics
  • understand the use of models in economics
  • understand the use of economics to analyse issues
    in recreation, leisure and tourism
  • access sources of information

Important Terms To Know
  • SCARCITY limited availability of things that we
    desire (not to be confused with shortage).
  • UTILITY the benefits (satisfaction or
    well-being) individuals receive from owning or
    consuming goods and services.
  • RESOURCES factors of production (inputs) that
    are used to produce the goods and services that
    give us utility.

Important Terms To Know
  • OPPORTUNITY COST the highest valued benefits
    that must be given up when using a resource in a
    particular way. The highest valued alternative
    that is unavailable because a resource is used in
    some other way.
  • HUMAN RESOURCES the quantity and quality of the
    labor force as a contributor to the production of
    goods and services.
  • CAPITAL GOODS human-made, tangible resources
    used to produce goods. For example, factories,
    machines, and tools. (Not money or financial

Important Terms To Know
  • Leisure
  • discretionary time.
  • Recreation
  • pursuits undertaken in leisure time.
  • Tourism
  • visiting for at least one night for leisure and
    holiday, business and professional or other
    tourism purposes.
  • Economic problem
  • scarcity and choice.
  • Leisure and tourism sector organizations
  • organizations producing goods and services for
    use in leisure time, and organizations seeking to
    influence the use of leisure time.

Important Terms To Know
  • Microeconomics
  • study of household and firms behaviour
  • Macroeconomics
  • study of whole economy.
  • Ceteris paribus
  • other things remaining unchanged

The word Economy . . .
  • comes from a Greek word for
  • One who manages a household.

A household and an economy face many...
  • Decisions?
  • Decisions?
  • Decisions?
  • Decisions?
  • Decisions?

  • Who will work?
  • What to produce?
  • What resources to use?
  • Who will we sell it to?

  • means that society has less to offer than
    people wish to have.
  • Managing societys resources is important
  • because resources are scarce.

Economics is the study of how society manages its
scarce resources
  • Economists study. . .
  • how people make decisions.
  • people interact with each
    other.(Businesses Customers)
  • the forces and trends (the changes in exchange
    rate, oil prices, or interest rate) that affect
    the economy as a whole.

Ten Principles of Economics I. How People Make
  • In a world of scarcity, every choice is a
    tradeoff. Almost all resources can be used many
    different ways.
  • People face tradeoffs.
  • The cost of something is what you give up to get
  • Rational people think at the margin. Ex. Airline
    has 30 empty seats before taking off. (MC and MB)
  • People respond to incentives.

I. How People Make Decisions 1. People face
  • To get one thing, we usually have to
  • give up another thing.
  • Guns vs. Butter
  • Food vs. Clothing
  • Leisure Time vs. Work
  • Efficiency and Equity
  • (With limited resources, can you have them all in
    the same time?)

I. How People Make Decisions 1. People face
  • Efficiency means . . .
  • getting the most you can from scarce resources.
  • Equity means . . .
  • benefits of resources are distributed fairly
    among society.

I. How People Make Decisions 2. The Cost of
Something Is What You Give Up to Get It
  • Decisions require comparing costs and benefits of
  • Going to college vs. going to work
  • Opportunity Cost is what you give up from one
    alternative (choice) to get what you want (from
    another choice)
  • Limited resources (Entrepreneurial
    skills/Capital/Land/) of Government and businesses

Production Possibility Frontier used to explain
Opportunity cost (Mutually Exclusive)
Money for Summer trip
Money for Summer School
I. How People Make Decisions 3. Rational People
Think at the Margin
Margin getting more than what you invest. (ex.
Buying life insurance or travel insurance).
  • Marginal changes are small, incremental
    adjustments to an existing plan of action.
  • Comparing benefits and costs of a critical choice
  • Marginal Benefits gt MB
  • To produce one more unit, what is additional
  • Marginal Costs gt MC
  • To produce one more unit, what is additional cost?

I. How People Make Decisions 4. People Respond
to Incentives
  • Marginal changes in costs or benefits from
    decisions motivate people to respond.
  • Decision to choose one good over another occurs
  • MB gt MC.
  • These costs and benefits can be both monetary or
    nonmonetary in nature.

Ten Principles of Economics II. How People
Why do people need to trade with others?
  • Trade can make everyone better off.
  • Markets are usually a good way to organize
    economic activity.
  • Government can sometimes improve market outcomes.

II. How People Interact 5. Trade Can Make
Everyone Better Off
  • People have different tastes and preferences, and
    incur different opportunity costs in the
    production of goods.
  • Individuals gain from their ability to trade with
  • The assumption that people behave rationally
    suggests that voluntary trade will not occur
    unless both parties expect to gain from the
  • Competition results in gains from trading.
  • Trade allows one to specialize in what they do

II. How People Interact 6. Markets Are Usually a
Good Way to Organize Economic Activity
  • In a Market Economy, households and business
    firms determine what to buy, who to work for, who
    to hire and what to produce.
  • What is Market Economy?
  • It is an economy that allocates resources through
    the decentralized decisions of many firms and
    households as they interact in markets for goods
    and services.
  • Interaction between household and business is as
    if by an invisible hand.

II. How People Interact 6. Markets Are Usually a
Good Way to Organize Economic Activity
  • What is an invisible hand?
  • Households and firms interact in market as if
    they are guided by invisible hand that leads
    them to desirable market outcomes.

II. How People Interact 7. Governments Can
Sometimes Improve Market Outcomes
  • When the market fails (breaks down) government
    intervenes to
  • promote Efficiency - Govt help improve
    employment when economic crisis occurs.
  • promote Equity -Govt adding more money into
  • Market failure results in inefficiency - failure
    of invisible hand.
  • What is Market failure?
  • A situation in which a market on its own fails to
    allocate resources efficiently.(Thai Economy)

II. How People Interact 7. Governments Can
Sometimes Improve Market Outcomes
  • Market failure may be the cause of an externality
    which is the impact of one persons actions on
    the well-being of another person. (example
    pollution-Govt intervenes through environmental
  • Market power is the ability of a single person to
    unduly influence market prices.
  • A single well owner in the village. He has market
    power over the sales of water. (Monopoly)

Ten Principles of Economics III. How the Economy
as a Whole Works
  • A countrys standard of living depends on its
    ability to produce goods and services.
  • Prices rise when the government prints too much
  • Society faces a short-run tradeoff between
    inflation and unemployment.

III. How the Economy as a Whole Works 8.
Standard of living depends on a countrys
  • Standard of Living may be measured in different
    ways (e.g. personal income or total market value
    of a nations production.)
  • Differences in standard of living between
    countries or even states is attributable to the
    productivity of the country or state.
  • Normally, standard of living represents average
    spending of people in a certain country.

III. How the Economy as a Whole Works 8.
Standard of living depends on a countrys
  • Productivity is the amount of goods and services
    produced from different resources
  • Productivity gt Standard of Living

III. How the Economy as a Whole Works 9. Prices
Rise When The Government Prints Too Much Money
  • Prices on average rise over time when the
    quantity of money increases faster than the
    increase in output.
  • Inflation is an increase in the overall level of
    prices in the economy.
  • One cause of inflation is the growth in the
    quantity of money.

III. How the Economy as a Whole Works 10.
Society Faces a Short-Run Tradeoff Between
Inflation and Unemployment
  • A Short-Run Tradeoff. You Choose.

The Relationship of Economics and Tourism
Definition and scope of recreation, leisure and
  • Leisure discretionary time
  • Recreation pursuits undertaken in leisure time
  • Tourism visiting for at least one night for
    leisure and holiday, business and professional or
    other tourism purposes

Definition, scope and methodology of economics
  • The nature of economics
  • Allocative mechanisms (Limited resources vs.
    unlimited wants)
  • Free market economy
  • resources allocated through price system.
  • Centrally planned economy
  • resources allocated by planning officials.
  • Mixed economy
  • resources allocated through free market and
    planning authorities.

Definition, scope and methodology of economics
  • The methodology of economics
  • Economics is social science.
  • The science of social science
  • Science of economics is to develop a body of
  • Economic principles try to explain the behaviour
    of households and firms in the economy.

  • Two common aspects of science in Economics
  • One needs to distinguish between positive and
    normative statements.
  • Positive statements are those which can be tested
    by an appeal to the facts.
  • Normative statements are those of opinion and
    therefore cannot be tested by an appeal of the

Examples of positive statements
  • A rise in consumer incomes will lead to a rise in
    the demand for new cars.
  • A fall in the exchange rate will lead to an
    increase in exports overseas.
  • More competition in markets can lead to lower
    prices for consumers.
  • If the government raises the tax on beer, this
    will lead to a fall in profits of the brewers.
  • A reduction in income tax will improve the
    incentives of the unemployed to search for work.
  • A rise in average temperatures will increase the
    demand for chicken.

Example of normative statements
  • The government should increase the national
    minimum wage to 250 baht per day in order to
    reduce relative poverty.
  • The government is right to introduce a ban on
    smoking in public places.
  • The retirement age should be raised to 75 to
    combat the effects of our ageing population.
  • The government ought to provide financial
    subsidies to companies manufacturing and
    developing wind farm technology.

  • The social of social science
  • Social sciences include economics, sociology and
    psychology, while natural sciences are physics
    and chemistry etc.
  • Economic models
  • Models are used to describe the relationship of
    economic variables
  • Y C I G (X-M)
  • Devaluation of Thai baht increases the demand for
    products and medical services of Thailand

  • Models are generally simplified abstractions of
    the real world.
  • Two components of models are
  • Assumptions are made which build the foundation
    for the model. (Ceteris Paribus- other things
    being held constant)
  • Implications or outcomes are predicted by the
    working of the model. (the prediction of economic
    growth for the year 2010 is 2)

Scientific testing of theories
  • Hypothesis
  • A tentative explanation for an observation,
    phenomenon, or scientific problem that can be
    tested by further investigation.
  • consists either of a suggested explanation for an
    observable phenomenon or of a reasoned proposal
    predicting a possible causal correlation among
    multiple phenomena.
  • Theory is
  • a set of statements or principles devised to
    explain a group of facts or phenomena, especially
    one that has been repeatedly tested or is widely
    accepted and can be used to make predictions
    about natural phenomena.
  • the analysis of a set of facts in their relation
    to one another

Scientific testing of theories
  • The End