Sunday, August 30, 2009

Test your understanding of economics in the news: Is this a change in supply or a change in demand?

In the August 26, 2009 article "Diplomats Help Boost Rates at World's Most Expensive Hotels" Tara Loader Wilkinson explains that in the midst of the recession, some of the world's most expensive hotels are raising the prices of their luxury suites. Is this increase in the price of renting a luxury hotel room caused by (a) an increase in the supply of luxury hotel rooms, (b) a decrease in the supply of luxury hotel rooms, (c) an increase in the demand for luxury hotel rooms, or (d) a decrease in the demand for luxury hotel rooms?

Read the article and then illustrate this price change with a graph that shows the initial positions of the supply and demand for luxury hotel rooms and the new positions of the supply and demand curves. (Hint: Only one of the curves has shifted.) There is a link at the bottom of this posting that provides the answer.
Amid the recession, rock stars, diplomats and other celebrities find solace from the doom and gloom by spending their time in sanctuary provided by the world's most luxurious, and expensive, hotels. While many of us are tightening our belts, shortening our summer holidays or even abandoning them, hoteliers to the rich and famous claim to have no trouble filling their most exclusive accommodations, and in the case of the most expensive suite in the world, managing to double its rate to $65,000 (€45,642) a night.

In an annual survey by Financial News' sister publication Wealth Bulletin, the Royal Penthouse Suite at the President Wilson Hotel in Geneva, Switzerland, tops the list as the most expensive hotel room in 2009, commanding $65,000 for its four-bedroom penthouse -- twice as much as patrons paid a year ago for its luxurious setting and views of Lake Geneva and Mont Blanc.

The hotel's management puts the rise down to "buoyant demand" from government officials and U.N. diplomats.

Last year's winner, the iconic Ty Warner Penthouse at the Four Seasons Hotel in New York, came second this time, at $35,000, $1,000 up from last year.

New entries this year were the third-placed Presidential Suite at the Hotel Cala di Volpe in Sardinia, the Villa La Cupola Suite at the Westin Excelsior in Rome and the Presidential Suite at the Ritz-Carlton in Tokyo.

Despite the past year's financial and economic turmoil, prices at the best hotel suites have risen by an average of 10% this year. Herbert Ypma, founder of the Hip Hotels brand, said: "The very high end hasn't suffered all that much. A lot of hotels used to having upmarket clientele are getting the benefit of them taking far more time off than usual -- so they have more time to stay in hotels. Money was never the issue, time was."

Hoteliers said that although the number of business travellers has fallen in the past year, government officials have taken their place in the best rooms and suites.

President Barack Obama and his entourage took over the entire Ritz-Carlton Hotel in Moscow for three nights in June. The President Wilson Hotel said heads of state and other high-level government officials are fuelling demand for its hugely expensive Royal Penthouse Suite.

Vivian Deuschl, spokeswoman for Ritz-Carlton Hotels, said demand is also coming from wealthy leisure travellers: "Last year they might have taken three or four cheaper holidays. This year they are taking one big vacation, but pulling out all the stops."

The 10 most expensive hotel suites according to Wealth Bulletin's survey for 2009 are:

1. The Royal Penthouse Suite, President Wilson Hotel, Geneva -- $65,000 per night

Complete with a cocktail lounge, the Royal Penthouse Suite at the President Wilson is so exclusive that bookings reportedly have to be made through the hotel's chairman. The suite occupies the entire top floor of the hotel. It is reached by a private elevator, has four bedrooms overlooking Lake Geneva and Mont Blanc and comes with six bathrooms. Equipped with bulletproof windows and doors, it is almost exclusively reserved for celebrities or state heads, ideal with the United Nations headquarters a five-minute drive away.

2. Ty Warner Penthouse, Four Seasons Hotel, New York -- $35,000 per night

Business at the Ty Warner Penthouse at the Four Seasons Hotel in New York has remained as buoyant as when the suite opened in 2007, according to a spokeswoman. The nine-room suite has walls inlaid with thousands of pieces of mother-of-pearl. There is an indoor-outdoor Zen garden, a private spa room with a screen of living bamboo and a book-lined library, which has a grand piano at its centre.

3. The Presidential Suite, Hotel Cala di Volpe, Costa Smeralda, Sardinia -- $34,000 per night

The Presidential Suite at Hotel Cala di Volpe near Porto Cervo, averages around $34,000 a night, although during the peak summer season will cost as much as $45,000. Located in the hotel tower, the multi-level Presidential Suite sprawls across 2,500 sq ft and has three bedrooms, three bathrooms, a private gym, a steam room and a wine cellar. It is crowned by a rooftop terrace with an outdoor saltwater swimming pool.

4. Villa La Cupola Suite, Westin Excelsior, Rome -- $31,000 per night

Villa La Cupola Suite in Rome's Westin Excelsior embodies all things Roman and excessive: a cupola, a Pompeii-style Jacuzzi, frescoes and stained glass windows detailing allegories of a mythological figure paired with a modern one, such as Atlas and Television, Hypnosis and Neurosis, Hermes and Marketing and Hermaphrodite and Fashion. Located on the fifth and sixth floors, the suite covers 6,099 sq ft and has an additional 1,808 sq ft of balconies and terraces overlooking Via Veneto.

5. The Presidential Suite, Ritz-Carlton Tokyo -- $25,000 per night

The Presidential Suite, on the top floor of the city's tallest building, has spectacular views of Mount Fuji and Roppongi Hills, as well as an expansive vista of Tokyo's impressive cityscape. It occupies 2,368 sq ft. For refreshments, guests may enjoy the $18,000 Diamonds-Are-Forever Martini, which comes with a one-karat Bulgari diamond at the bottom.

6. The Bridge Suite, The Atlantis, Bahamas -- $22,000 per night

The 10-room Bridge Suite is actually a bridge spanning the two towers of the Atlantis Hotel. The 23rd-floor suite is decked with marble floors, a grand piano and a 22-carat gold chandelier. It was known in former times as "the Michael Jackson Suite" because of his regular stays. Prices have come down from $25,000 last year and fees are negotiable. Nevertheless, the suite is so exclusive the hotel does not even advertise it.

7. The Imperial Suite, Park Hyatt Vendôme, Paris -- $20,000 per night

The Imperial Suite at the Park Hyatt in Paris provides guests with an "in-suite-spa" concept -- with the bathroom/spa comprising a whirlpool bath, a steam shower room and a massage table. The 2,500 sq ft penthouse suite has a huge living room, a dining room, a kitchen and a work area.

8. Royal Suite, Burj Al Arab, Dubai -- $19,600 per night

Since it was built in the mid-1990s, the Burj Al Arab has become one of the world's most instantly recognizable hotels with its billowing sail-like structure stretching out on an artificial island into the Gulf of Arabia. The Royal Suite on the 25th floor has a marble-and-gold staircase, leopard print carpets, its own private lift and a rotating four-poster canopy bed.

9. Royal Armleder Suite, Le Richemond, Geneva -- $18,900 per night

The Royal Armleder Suite at the Le Richemond Hotel is named after the wealthy family who used to own the famous hotel before Rocco Forte bought it in August 2004. The three-bedroom suite, which stretches over 2,500 sq ft on the seventh floor, has a 1,000 sq ft terrace with panoramic views of Lake Geneva, a real log fire and floor-to-ceiling bulletproof windows. Olga Polizzi, Rocco Forte's sister and well-known hotel interior designer, designed the suite.

10. The Ritz-Carlton Suite, The Ritz-Carlton, Moscow -- $16,500 per night

To stay at the best suite in Moscow's Ritz-Carlton would cost around $16,000 a night -- $500 less than last year. Furnished in Russian imperial style, the 2,370 sq ft suite has views of famous Moscow sites including the Kremlin and Red Square. The suite comes with that necessity for the security-conscious Russian billionaire -- a panic room with its own energy and telecommunications facilities.

Research for this survey was compiled during mid-August. Prices are rate per night including taxes.

CLICK HERE FOR THE ANSWER.

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