Demand refers to how much (quantity) of a
product or service is desired by buyers.
The quantity demanded is the amount of a
product people are willing to buy at a certain
The relationship between price and quantity
demanded is known as the demand relationship.
Supply represents how much the market can
The quantity supplied refers to the amount of
certain goods producers are willing to supply
when receiving a certain price.
The correlation between price and how
much of goods or service is supplied to the
market is known as the supply relationship.
Price, therefore, is a reflection of supply
The Supply Relationship
Law of Demand 1
The Law of Demand states that other
things held constant, as the price of a
good or service increases, the
quantity demanded will fall.
The four basic laws of supply and
1. If demand increases and supply remains
unchanged, a shortage will result, leading to a
higher equilibrium price.
2. If demand decreases and supply remains
unchanged, a surplus will result, thus leads to
a lower equilibrium price.
3. If demand remains unchanged and supply
increases, a surplus will result, leading to a
lower equilibrium price.
4. If demand remains unchanged and supply
decreases, a shortage will result, leading to a
higher equilibrium price.
The market price at which the
supply of an item equals the
Law of Supply and Demand
In free markets, surpluses and/or
shortages tend to be temporary and
obey the law of supply and demand,
since actions of buyers and sellers
tend to match prices back toward
their equilibrium levels.
Definition of Demand
The amount of a product that will
be sold at a certain price for a
ie the higher the price the less
bought….the lower the price the
Definition of ‘demand for tourism’:
The total number of persons who
travel or wish to travel and use tourist
facilities and services at places away
from their places of work or residence
(Cooper et all. 1993)
Demand for Tourism
Development at a tourism destination is
shaped by the demand for tourism in that
country. Thus the demand for tourism in
any country is shaped by the tourism
Tourism opportunities represent a mix of
For a destination to succeed it is important
to deliver a quality product based on
sustainable principles necessary for tourism
External factors that influence tourism demand
External factors –eg disposable income, time
availability, change in the demographic composition
of a society.
Basic services intertwined with tourists motivations
– eg availability of the right kind of accommodation,
reliable and available transport, infrastructure
Market segments –the categorization of tourists
Tourism policy by government organisations
Marketing through promotional campaigns that lift
or create demand (eg Tourism NZ Hobbit campaign)
The media through either positively endorsing or
recommending a destination or tourism supplier, or
adversely reporting on negative aspects of tourism
in an area.
Motivation and Demand:
Travel facilitators are economic and social
factors combined with influence from
suppliers of tourism products. Facilitators
relate to a person’s ability to travel. Key
facilitators are: time and money.
Motivators relate to the reasons why people
wish to travel and engage in tourism.
Status and prestige motivators
Wanderlust – the desire to exchange the
known for the unknown, to leave familiar
things and to seek new experiences,
places, people and cultures
Sunlust – a desire to travel and enjoy
Supply of some tourism facilities (eg
accommodation) is ‘inelastic’….ie limited or
When supply is limited competing forces
may bid the price up.
In response to higher offers suppliers may
be willing to increase production (extend
the hotel, release additional rooms).
If the %age change in demand is greater
than the %age change in price which
caused it, then demand is elastic.
If the change in demand is less than the
%age change in price which caused it,
then demand is inelastic.
If responsiveness of demand is exactly
proportional to the change in price, then
elasticity is unitary.
Price elasticity of demand in New Zealand
1. Price of transport to the destination
2. Rate of exchange between the currency of
the host country and the currency of the
generating country (international tourism)
3. The price of ground costs (as influenced by
Price of tourism product is made up of 3
An individuals income increases their
demand for specific products but reduce
their demand for products previously
This is because the change in income may
allow a person to buy a higher-quality
product instead of an inferior product. [Law
Air fares elasticity
Short haul air fares tend to be inelastic as price
elasticity of demand has been calculated to be
inelastic. (doesn’t change demand much
Long haul travel tends to be price elastic (ie a
special air fare reducing $300 of the price of a
flight to NZ can create an immediate increase in
demand) whereas low priced are usually price
inelastic (ie reducing the cost of a Diet Coke from
$1.20 to $1.15 is unlikely to cause much shift in
Exchange rate elasticity
A drop in the value of the NZ$ is positive for NZ
tourism as it lowers the cost of visiting the
country. Visitor numbers and spending will
increase. But the funding that Tourism NZ
receives for marketing NZ overseas is in NZ$, and
as the value of the dollar decreases their
purchasing power overseas will also decrease.
A strong NZ$ increases the cost of an NZ holiday
and reduces the spending power of visitors, It
does however increase the purchasing power of
TNZ offshore by increasing its marketing budget
in overseas markets.
Determinants of demand elasticity
For business travellers the decision of
when/where or even whether to go is often
beyond their control. (attending conferences,
meetings, product launches etc) So business
travel is both price and income inelastic.
For leisure travellers they have freedom of choice
regarding where/when/how long and even
whether to go on holiday at all. Leisure travellers
can shop competitively, checking prices, value for
money, special offers etc. So income and price
elasticities are higher than for business travellers.
Total revenue and elasticity of demand
Drop in price only increases revenue if
demand is high enough and the quantity
sold compensates for lowering of selling
Increase in price usually leads to drop in
demand but can lead to increase in overall
Sensitivity of demand
Fashion – destinations go in and out of
Socio-political changes – civil unrest can
seriously affect demand for a destination,
or alternatively increase demand if the
country was previously engaged in war or
internal strife and is now peaceful.
Simultaneous consumption of
complementary products and services
Tourism products are often consumed
together, such as an air flight and a hotel
room along with a sightseeing tour.
So increase in demand for one product
may cause increase in demand of
From other tourism products, such as
suppliers of similar products, or suppliers
of products to other destinations.
From non tourism products – because
expenditure on tourism is often
discretionary and could be reassigned to
other ‘luxury’ goods such as computer,
car, home theatre system.
Tourism demand is highly season almost
worldwide with weather being critical factor in
choosing a destination
School holidays affect seasonality, as do
traditional ‘factory shut-downs’ that require
workforce to take holidays at that time.
Key holidays affect seasonality, such as
Christmas, Thanksgiving in USA.
Special events are impacted by seasonality of
demand…the tourism demand is only present for
the periods of the event.
Marketing strategies are designed to shift demand
from peak (requires less marketing effort) to off-
peak in order to extend the tourism season
Law of Supply
As the price of a product rises, all
other things being equal , suppliers
will offer more for sale. [As they will
have more to sell since price
increases can dampen demand]
Definition of tourism supply
The supply of all assets, services and goods
to be enjoyed or bought by visitors and
occasioned by the journeys of visitors.
Tourism supply consists of an amalgamation
or mix of attractions. Tourism supply shapes
the demand for tourism in a country.
[Cooper et al – 1993]
Supply – the provision of the key elements
of the tourism industry by the host
government and destinational leadership.
Tourism resources for tourism supply range
from natural to man-made.
Infrastructure required includes
telecommunications, accommodation and
Tourism services include tour companies,
visitor information offices, transport rental
Understanding tourism supply
'Tourism supply is a complex phenomenon because of both
the nature of the product and the process of delivery.
Principally, it cannot be stored (i.e. it is a perishable
product), it is intangible in that it cannot be examined prior
to purchase, it is necessary to travel to consume it, heavy
reliance is placed on both natural and human-made
resources and a number of components are required, which
may be separately of jointly purchased and which are
consumed in sequence.
It is a composite product involving transport,
accommodation, catering, natural resources, entertainment,
and other facilities and services, such as shops and banks,
travel agents and tour operators.'
Sinclair and Stabler (1997:58)
Tourism destination planning
The availability of natural resources and
The availability of investment funds
A skilled human resource base
Government policy that supports tourism
The presence of complementary services
and facilities and infrastructure
Tourism exists in a fixed geographical
Visitors must visit the destination or
location. The location cannot relocate to the
Businesses have to invest in tourism
operations at the destination with an
expectation that the destination will appeal
sufficiently to visitors.
This characteristic of tourism supply
impacts on a destinations’ ability to grow to
meet demand. (investors can be slow to
see the opportunity but quick to see the
TransportTourists Area of
Services Tour Guides
Components of Tourism Supply (supply chain)
(Tshililo Nelwamondo – 2009)
Hospitality – accommodation, food
service, entertainment, leisure
Transport: Air, road, rail – both to
the destination and travelling
Attractions: Theme parks,
museums, buildings, ski-slopes etc
How does supply change to meet demand?
Changes airlines have made to meet demand with
changing routes (cancelling some, introducing
others, adding or deleting capacity to meet the
Construction of new 4 and 5 star hotels in Auckland
to meet demand for higher quality accommodations
Cruise ships – flood of new ships being built
(additional supply) to meet the growing demand for
Advent of high-end luxury cruising with
balconies/windows and incredible array of amenities
to suit demand by more discerning consumers.
Expansion of conference facilities (Sky City etc) to
meet growth in conferences and events market.
Time and Supply
Time is important to supply because
suppliers must try to react quickly to a
change in demand or price. For suppliers
it’s important to determine whether a
price change that is caused by demand
will be temporary or permanent.
Changes in quantity of a product or
service occur due to:
Capacity and technology
Prices of substitutes and complements
Perceptions of future prices
Demand and Supply in Pricing
If no single seller or buyer can set prices and
neither does government or any other
institution; how are goods and services
allocated in competitive markets, and how are
resources allocated in the competitive factor
If markets were not competitive by definition a
single seller or buyer could control and set
price. Competition then needs flexible
Suppliers must not work together to influence
prices, and each supplier must be able to enter
or exit a market at will.