Question

The following headline appeared in the Economic Times:
"Room Supply may Hit Hotel Revenues."
Explain the economic theory to analyse the impact of the statement.

Answer 1

"increase in room supply may hit hotel revenue". This is a situation of increase in supply and the demand remains the same. In this situation there is an increase in the quantity supplied, this may or may not increase demand. Hence, to bring the market to equilibrium the price will reduce and the hotel revenue will reduce