If average daily rate is elastic, then lower prices would generate sufficient incremental demand to offset

revenue lost through discounts. If ADR is inelastic, then a rate reduction would not generate enough
incremental demand to offset the discount. Rate is largely inelasticor discounting does not stimulate
enough demand to make up for rate reductions. The law of economicsas the price decreases, demand
increasesholds true for the hospitality industry.
Demand Curve: Relationship between price and the quantity bought is the demand curve.
Law of downward-sloping demand: wen the price of a commodity is raised buyers tend to buy less of the
commodity. Quantity demanded tends to fall as price rises for a reason. The reason being Substitution
Effect: when the price of a product increases consumers tend to substitute it with similar products.
Forces behinf the demand curve: the prices and availability of similar products/ services influence the
demand of the commodity. Demand for goods tends to be low if the price of the substitute goods is low.
Shifts in Demand: when there are changes in factors other than a goods own price which affect the
quantity purchased is called shifts in demand.
Price Elasticity: this is an economic measure that shows the responsiveness or elasticity of the demand
for a product based on a change in its price. In terms of hotel rooms, a high level of elasticity means that
consumer demand changes a lot as prices change. A positive elasticity means that there is a lot of
demand growth in response to lowered prices and the demand compensates for the lowered rated. A
negative elasticity means that the demand growth prompted by lower rates is not adequate to
compensate for the revenue lost due to lower prices.