Rational Expectation The idea of rational expectation was introduce by Grunberg and Modigliani (1954) and later by Muth (1961), the main them was that prediction of economic event like, weather forecast can affect the economic event. Similarly the expectation of an increase in prices can affect the most of economic agent decisions. The rational expectation can also affect the customer’s behavior while taking the decision. Since the customers have full information about the hotel and its price and he can change his/her booking decision while found any change in price. For example in vacation the hotel booking price usually increases while off the vacation their price is relatively lowered. Similarly on the weekends the hotel booking price is …show more content…
Apart from booking time, the stars of hotel also affect the booking decision of the customer for example a four to five star hotel will have higher price for the booking while 3 or 2 stars have lower booking price. Thus consumer knows the price, brand, its location etc. The customer can also have information any fluctuation in its prices therefore the customer rational about his booking; as the customer has full information about the market price, he can assess the available information and can make good decision regarding the online hotel booking. Her in the analytical formwork we will only discuss the customer behavior for price change. Initially the equilibrium of rational expectation was based on strong assumption in econometric model. However due the advancement in mathematics in late fifties and early sixties “General Equilibrium” model, it has been developed mathematically by Rander (1968, 1972), however he imposed so many restrictions. The analytical framework is based on Rander (1968, 1972) and it is the transformed form as it is applied …show more content…
This situation is still at extreme the because the trader payoff don’t depend on other traders type, and their utility even depends directly on their own type Rational Expectation Equilibrium: The rational expectation is “Rander equilibrium” with that customer has some belief ρ such that ρ(θ) = q(θ). This shows the customer know the hidden information about the price. For each θ the customer belief is Let qf(θ) is any price from the ordinary Rander equilibrium price related to expectation. While be the spot price in the full information of Rander equilibrium, when customer are θ type and similarly the is the customer equilibrium consumption plan in the full information. The idea of rational expectation, here we show it change in customer decision for any change in its prices, however, customer may rational in the sense that it has full information about the brand, hotel location, and other facilities. But due the limitation of mathematical approach and only information that we have in literature is related to its price. Nevertheless, there are future opportunities of research to form a general equilibrium model that covers all
Unconscious need level- People do not know why they buy, only that they do buy. In this case the salesperson needs to determine the needs of the buyer through skillful questioning.
1.To increase prices according to 4th scenario (total line price increase by 5%) and from short-term revenues income use resources for advertising.
A theme that dominates modern discussions of macro policy is the importance of expectations, and economists have devoted a great deal of thought to expectations and the economy. Change in expectations can shift the aggregate demand (AD) curve; expectations of inflation can cause inflation. For this reason expectations are central to all policy discussions, and what people believe policy will be significantly influences the effectiveness of the policy.
Rational choice theory asserts that economic agents perform market transactions with a predefined and complete set of preferences. Having limited information, budget and time to make a decision – consumers strive for the highest satisfaction, known as utility (Microeconomics). To buy at the same supplier again – previous satisfaction would prevail upon any other argument. Should the expectation have been met or exceeded – the search phase of a new decision process would be shortened, saving consumers valuable time and limiting cost, which in turn helps in maximising perceived value of the product. Hence, LPs would only be successful when designed to maximise customer-perceived value by either increasing the total offering’s benefit or cutting total consumer’s cost”.
Price Elasticity is the measure in responsiveness of consumers to changes in the price of a product or service. The evaluation and consideration of this measure is a useful tool in firms making decisions about pricing and production, and in governments making decisions about revenue and regulation. “Price Elasticity is impacted by measurable factors that allow managers to understand demand and pricing for their product or service; including the availability of substitutes, the consumer budgets for the product or service, and the time period for demand adjustments.” The proper consideration of Price Elasticity allows managers to set pricing such that the effect on Total Revenue is predictable and adjustments to production are timely. The concept of Price Elasticity is employed in the management of commercial firms and government.
...hese events happen or minimize the negative impact when they happened. This will stabilize the distributable profit.
... middle of paper ... ... For example, economics applies rational choice when formulating hypotheses to determine things such as market behavior. These hypotheses provide empirical evidence that will then provide economists with found information that will assist them in predicting economic behavior.
The following essay will define what rational organisation design is and how it can be used in business to both cut costs and give increased control to management as well as giving reference to important figures who relate to the systems development. Both the benefits and drawbacks of rational organisation will be explored with both theoretical and real life examples. The conclusion will highlight how rational organisation can be implemented into Junction Hotel and the extent to which it is desirable.
Thanks to these factors, pricing becomes one of the primary uses with which hotels attract customers. However, due to customers’ independent nature, there influence over industry players is limited. In the high-end segment of hotels, price influence becomes even less as hotels find it easier to differentiate themselves from the competition and customers become less price sensitive coming to expect higher prices as a symbolism of superior quality and services. Lastly, corporate business and tour operators can exert more influence due to their large purchases but this affect is of a limited nature and does not extend across the whole
The second market structure is a monopolistic competition. The conditions of this market are similar as for perfect competition except the product is not homogenous it is differentiated; thus having control over its price. (Nellis and Parker, 1997). There are many firms and freedom of entry into the industry, firms are price makers and are faced with a downward sloping demand curve as well as profit maximizers. Examples include; restaurant businesses, hotels and pubs, specialist retailing (builders) and consumer services (Sloman, 2013).
2. Demand-supply gap : Indian hotel industry is facing a mismatch between the demand and supply of rooms leading to higher room rates and occupancy levels. With the privilege of hosting Commonwealth Games 2010 there is more demand of rooms in five star hotels. This has led to the rapid expansion of the sector.
In the absence of government intervention, price is determined by demand and supply. The equilibrium price is where demand and supply are equal. At this point there are no forces causing the price to change. The quantity which consumers want to buy will equal the quantity which producers want to sell at the current price.
Individuals make economic decision based on a variety of reasons. The rational is based on each individual’s need or desire for a commodity. People go through several decision-making processes before making the final decision and are often not conscious of the process. Obviously, decision- making covers a wide area, involving virtually the whole of human action. Often people are not conscious of the process.
For example, the chart would reflect the correlation between demand and the products price, or in the case of supply, the supplied products and its price. Moreover, supply, demand, and price, along with supply elasticity can be graphed and analyzed. This particular method of tracking and analyzing data is essential in identifying the markets status and determining the best plausible route (Skousen, 2014). By studying supply and demand, one is also able to identify whether an excess or a shortage in demand or supply is occurring, or whether an equilibrium has been attained. Consequently, it is evident that supply and demand take part in the market economy and greatly influence and impact the price value. Furthermore, to express how supply and demand impacts the price value, the price value of airline tickets will be utilized as an
Tourism and Hospitality has developed rapidly and becoming extremely important to economy in the world. The income that several countries in the world receive from tourism industry can be reached to $1billion per year. In addition, Marketing is one of the most important factors that help and effect to tourism industry in many positive ways. Marketing evolved in the tourism industry since 1980. It promotes tourism industry by encouraging the tourists to travel at their destination with the strategy that made up to the tourist satisfaction. However, a marketing strategy does not have to be complex, in fact it should be a easily understood which ensure the advantage of marketing of the products and services to the tourist business to obtain positive