Week Eleven and Twelve Revision Questions – 3203THS Tourism and Hotel Economic Analysis

Discussion questions:

1. What factors can drive economic growth?

Land (mineral and agriculture) for tourism includes scenery, coasts or countryside.

Capital: investment in capital includes airports, roads or hotels. It boosts tourism development and
provide job opportunity. The investment by previous generation now forms important part of
cultural heritage.

Labour: labour comprise two parts – quantity, due to the plentiful supply of cheap labour and
quality, due to more highly educated and trained labour can be more productive

More inputs can be used more efficiently: economic output = input (capital + labour) * total factor
productivity. Total factor productivity is a measure of the efficiency with which input are used. It
depends on technology, innovation, leadership and management and external factors.

2. What are the two opposing schools or thought about promoting economic growth? Briefly
describe each one.

Government interventionists believe that government should involves in appropriately funding

education and training, investing in infrastructure and creating stable economic environment.

Free market advocates: though the free market and the action of prices mechanism, it reduces
government expenditure and taxes to increase incentives, reduces trade union power to encourage
flexible working hours. It also increases entrepreneurship and risk and encourage competition
through deregulation.

3. What are the barriers to economic growth in developing countries?

Population growth, low level of education, low income, under-developed financial sector that limits
access to affordable loans, absence of welfare system, over dependence on raw material exports,
poor terms of trade (low value gaining on exports, international debts and official corruption and
policy instability.

4. How can developing countries promote economic development through tourism?

Import substitution: produce goods that are currently imported

Export-led growth: produce goods and services that are based on local advantages

Infrastructure projects: investment on dams and airport to increase employment during construction
and to increase economic growth afterwards

Population control: set up birth policy

Educational and training project: increase productivity of labour

 5. What can cause economic decline in a region?

Regeneration is a process of economic redevelopment that has suffered decline due to structural
changes. The structural changes include reduced demand, reduced ability to complete in a market
due to cost, technological changes, and depletion of natural resource and government intervention)

6. What are the advantages of free trade? Give an example of a current free trade agreement.

The advantages of free trade: lead to an increase in total output and wealth. Nations should
specialise in activities where they have a comparative advantage and abandon other industry.

Example of a current free trade agreement: China – Australia free trade agreement and European
union.

7. Describe 2 advantages and 2 disadvantages of MNEs in developing countries.

Advantage: capital investment, employment, technology and skills transfer

Disadvantage: competitive threats to local firms, leakage from economy, resource grabbing, labour
exploitation and lack of sensitivity of host culture

8. How does the environment fit into the simple model of the economy?

Tourism is highly dependent on natural environment resources. In the simple model of economy, the
environmental capacity provides use of resource to the firms, such as land, scenery (tourism).
Therefore, firms can produce goods and service to household. In the process of production, firms
may put produce waste and pollution back to the environment (e.g. sewage treatment factory)

9. What are the four types of externalities? Give examples of each.

Production on production: the externalities of a firm interfere with the operation of another firms,
e.g. the noise from nightclub affects the hotel next door.

Production on consumption: the externalities of a firm’s production affect individual’s consumption,

e.g. the noise from aircraft may affect the people’s enjoyment on the beach

Consumption on production: external costs of a consuming interfere with a production process:

traffic jams caused by a major event can affect the operation of local firms

Consumption on consumption: external costs of a consuming affect the well-being of another

consumers, e.g. drunk nightclub patrons spoil the local tourists’ experience

10. Describe an economic strategy that can be used to help promote the environment.

11. What costs and revenues need to be taken into account when appraising new hotel
investments?
Cost: planning costs: feasibility studies and planning application; cost of capital goods: it is somehow
difficult to estimate on a large financial project; cost of financing the investment: it depends on the
interest on borrowed money; running costs: labour, raw material, power and maintenance

Revenue: price of output * quality sold. Food and beverage department, guest room sales, gaming
service, laundry, parking, telecommunications, business services.

12. Describe 2 methods of public sector investment in T & H.

Building: lands, park, museum and art centres.

Planet and machinery: trains or carriage on state railways, buses

Infrastructure: roads, airports, water, sewage

Research and development can be used by private sectors to increase value of its tourism industry