M4 Demand Concept for Tourism and Outdoor Recreation

1. M4Demand Concept for Tourism and Outdoor Recreation • Consumer Surplus

2. Demand Concept for Tourism and Outdoor Recreation • Purpose TOR development is to provide opportunity for consumers (benefits from TOR activities) • Individual participate; involves benefits & costs/price • To measure the benefits of TOR > concept of consumer surplus • CS is defined as the area below a demand curve and above direct cost or price • Example: Individual WTP for trips to TN How many trips to take per year? Normally> look at on aggregate demand curve

3. Demand Concept for Tourism and Outdoor Recreation Total and Marginal Benefits • Economists concerned; two types of benefits: • Total benefit • Marginal benefit • Problem: • Let say trips to TN • How much the total benefits to consumers of an activity (experience, pleasure, utility obtain?) • What is a reliable measurement? • Approach by researchers “What is the largest sum of money you would be willing to pay rather than give up the experience”

4. Demand Concept for Tourism and Outdoor Recreation • Example: • Individual considering 5 trips/yr to TN with a trips cost ≤ 200 • So TB of 5 trips to TN = 200 • A maximum amount that individual is willing to pay for the experience • TB >economic measure of consumer total satisfaction derive from any purchase • Increase in total TB; increase consumer satisfaction • Recreation economic decision> to make the benefits as large as possible> concept of marginal benefits • MB is “additional benefit to individuals from consuming one more unit of any good or service”

5. Demand Concept for Tourism and Outdoor Recreation • Example (graph) • Suppose the price /direct cost RM20/trip • Consumer should participate more in any activity whose MB > price or direct cost • Economic decision: should take 5 trips; because more than 5 trips yield MB ≤ price • Example (graph)

6. Demand Concept for Tourism and Outdoor Recreation • Important features on Pm > slope • Steeper slope; the larger price change • -ve slope; one variable fall as the other rises • Calculating the slope; • Statistical demand curve for TOR has been estimated using TC & CVM • TCM; ordinary demand curve Quantity demanded (Q) is dependent upon price (P) • CVM; inverse demand curve WTP or price (P) is dependent upon the quantity demanded (Q) • Ordinary demand curve • Equation: Q= a – bP; Q =7 - 0.1P (with b=7/10) • Ind demand 7 trip when the price is ‘0’ • Q demanded decrease by 0.1 trip with RM 1 increase in price

7. Demand Concept for Tourism and Outdoor Recreation • Inverse demand curve • Equation; P = a – bQ; P =70 – 10Q (with b=70/10) • At the price of RM70; individual demands no trip • WTP decreases by RM10 with each additional trip/year • Important Pm curve is to comparison of benefits and costs • Calculation BC; useful information for recreation economic decision • Example; to Taman Negara (RM20/trip, 100,000 visitor per year) • The benefits cost ratio = CS (net benefits) of individual users divided by the sum of the agency operation & opportunity cost • The benefits would estimated = RM2,000,000 per year • If the OC +OC=RM1,000,000 per year • The benefit cost ratio to society would be 2.0

8. Demand Concept for Tourism and Outdoor Recreation • Non-Price Variables • Perubahan dalam kos langsung or P dalam aktiviti RLP menyebabkan ‘pergerakan disepanjang’ keluk tetap Pm • Tetapi perubahan dalam ‘pembolehubah’ (variables) yg memperngaruhi Q menyebabkan ‘anjakan’ keluk Pm. • Jika pengguna RLP sanggup membayar lebih pada harga yang ditetapkan ----keluk Pm beralih ke kanan • Sebaliknya, jika pengguna kurang kehendak,----keluk Pm beralih ke kiri • Kesan terhadap kos langsung (P) ini juga bergantung kepada penentu-penentu lain yg mempengaruhi Pm. • When more than two variables are involved, ‘multiple regression’ are used to develop demand function.

9. Demand Concept for Tourism and Outdoor Recreation • Economics of Recreation Decision “calculate the effect of change in ‘non-price variables’ on Pm” • Example: • Jika berlaku perubahan peningkatan pendapatan individu menyebabkan keluk Pm bergerak ke kanan? • Jika berlaku penurunan pendapatan individu, keluk Pm bergerak ke kiri • Contoh: • Pada P(RM20/trip)Pendapatan ind (Y) = RM25K; 5 trip/yr • Pada P(RM20/trip)Pendapatan ind (Y)= RM35K; 6 trip/yr • Pada P(RM20/trip)Pendapatan ind (Y)=RM15K; 4 trip/yr

10. Demand Concept for Tourism and Outdoor Recreation • Non-Price Variables • The determinants of Pm shift of the curve (anjakan keluk) • Socio-economics characteristics of users;age(U), education (Edu), income (Y), ethnic (K), sex (L)) • RLP Location attraction • Substitution goods (S) • Traveling time (T) • Congestion(C) • Tastes/preferences (F) • In RLP, quantity demanded (Q) is measured in unit; • total of travel; no. of days; total of hour; individual per capita • Demand function for individual on RLP (TCM) activity: • Qx = ƒ (Px,Y, U, Edu, L, A, S,T etc) • Inverse Demand function WTP (CVM): • WTPx = ƒ(Qx,Y,U,Edu,L,A,S,T etc)

11. Demand Concept for Tourism and Outdoor Recreation • Socio Economic Variables • (Age, edu, income, ethnic, sex, origin) • Age (-ve); the relationship between age and participation usually negative. • If the age rises, the participation in RLP activities will fall; mountain hiking etc. • Education (+ve); higher education, higher participation. • Income (+ve); higher income, higher willingness to pay (WTP) • (-ve) for ‘inferior good’; higher income will decrease the participation in RLP: especially in certain activity. • Users characteristics---higher income; status and ‘indoor RLP’.