The

Economics of
Tourism
Chapter 1 by Jeoffery
Walton

Introduction
Tourism

includes travelling to visit

friends and family or going on vacation
that becomes some of our most
happiest memories.
It also includes travelling for business,
for example to attend a Conference.
This experience can be considered an
exciting break from the normal work
routine.

Introduction
The industry includes many experiences, such
as
amusement parks
historical sites
fine restaurants
cruise ships
wonderful destinations and attractions like the
Cayman Islands

Definition of Tourism
According to the WTO, tourism is defined as the
activities of persons travelling away from their
normal surroundings for up to one year for
leisure, business, or other purposes, but not
including activities where the traveler is paid for
the place visited.

Basically, it excludes persons changing

residence and traveling to a distant site to work
for pay.

The Tourism Industry

As a huge global industry, tourism provides:
Services to millions of people
Employment and investment returns
Tax payments to governments
The disruption of the evolution of local
regions

The Tourism Industry

According to the WTO estimates for 2005,
the total global spending on international
tourism, including passenger transport,
amounted to more than $800 billion.

Mix of People &Organizations

The tourism industry has a wide mix of people and
organizations that take part in tourism activities:
Consumers
Workers
Business and property owners
Investors
Private organizations
Governments
Others

Creating Value for Consumers,

Income Workers & Owners
An economy is the set of institutions that
create the goods and services society wants
to consume.
The purpose of the industry is to create value
for tourism consumers goods and services,
for example:
Meals in restaurants
Hotels stays
Travels
Many other services

Supply
The cost for producing goods and services
has been the greatest influence on business
firm behavior.
Much of the industry has two special features
that can help you better understand what is
happening in the many segments:
1. Producing services requires high fixed
costs and low marginal costs spread
across a wide range of services.
2. The business has capacity constraints at
the top end of that range at any time.

Supply
High fixed costs i.e. producing any level
of service requires a substantial initial
investment in capacity.
Low marginal costs i.e. after the initial
unit of service is produced, additional
units of service cost very little.
Capacity constraint the limit on the
maximum amount of output that can be
produced per period.

Demand
Demand is the relationship between the price and
the amount of a good or service that people buy.
At higher prices consumers buy less and at lower
prices they buy more.
Income is highly influential on tourism consumer
demand behavior.
Although consumers with different ranges of
income participate in tourism, it is known that
consumers with higher incomes increases tourism
demand.

Rivalry and Competition

As tourism industries have more than one
participating firm, there is rivalry for consumer
spending.
This affects firms' decisions about the services
they provide and the prices they charge.
To understand rivalry among tourism firms and
variance of prices and services, consider the
competition between major airlines that have
been in business for many years and new low-cost
airlines that have entered the industry i.e. JetBlue.

Government Regulation
Encouragement - Governments have had
important impacts on tourism and promoted the
industry in various ways, some of which are:
Direct cash subsidies
Subsidized facilities
River and seaport facilities
Airports and roads
Advertising
Safety regulation

Government Regulation
Discouragement - Governments have also
discouraged tourism in some ways, one of the
most direct and most frequent ways being
through taxation.

Another way is through implementing

regulations that protect the environment.

Tourism Industry Organizations

Many organizations around the world
promote,
analyze,
measure, and gather information about
tourism, and
are an important source of information
about the industry.

Tourism Industry Organizations

They also:
provide services to support the
industrys
operations,
perform analyses,
make policy recommendations,
compile statistics, and
put information into easily accessible
forms.

Tourism Industry Organizations

The organizations include:
Various branches of government agencies i.e. DOT.
Organizations representing the governments of
groups of nations i.e. WTO.
Major statistical agencies of nations of the world:

The U.S. Commerce Departments Bureau of Economic

Analysis
Statistics Canada
The World Tourism Organization

Private associations e.g. trade associations

promoting the interests of groups of tourism service
providers i.e. CITA and the Chamber of Commerce.

Tourism Industry Organizations

Functions of Trade Associations:
Government relations - includes
monitoring government policy, informing
members about impending actions, and
lobbying on behalf of members.
Technical or Operational help assisting
with telecommunications, handling
payments to multiple service providers.

Tourism Industry Organizations

Examples of Trade Associations:
Travel Industry Association of America
represents the entire industry and
promotes travel to the U.S.A.
The International Air Transport Association
serves the global air transport industry,
including both passenger airlines and air
cargo carriers.

Conclusion
As we have learned, tourism includes travelling
outside of ones surroundings for business or
leisure and returning within one year. It provides
services, employment, and investment returns to
a large amount of people around the globe.
Included are concepts of economics, such as
supply and demand, technology, and government
regulation. In the mix, are many domestic and
international organizations who promote and
analyze the industry.

Reference
Reece, W. S. (2010). The economics of
tourism. College of business and
economics: West Virginia University