THC1 Module

(Finals)

At the end of the module, students should be able to:

 Define economics
 Differentiate macro and micro environment
 Identify the factors affecting tourism demand

ECONOMICS

Economics refers to the study of the laws of supply and demand. It discusses the production,
allocation and distribution of resources. Economics is also about the optimal use of scarce
resources to match available resources with the needs and wants of individuals and
communities. To illustrate the law of demand and supply in action, imagine arranging a trip to
the beach during the summer season. Since this is the peak season for beach destinations, you
can expect more expensive hotel room rates: difficulties in booking your preferred flight
schedule; and overcrowding at all points of your journey. But if you book your vacation during
the rainy season, you can expect the reverse. Since the weather discourages people from going
to the beach, you can probably get cheaper rates. In another example, choices have to be
made when purchasing tour packages. Not only is it physically impossible to be in two places
simultaneously, but limited financial resources require decisions on which trip can be considered
more valuable in terms of price, itinerary, and inclusions vis-à-vis other available destinations.
Thus, “economics is concerned with issues arising from scarcity, what to produce, how to
produce, and to whom will these goods and services be allocated.” The dynamics are similar
whether the decisions are made by individuals, communities or countries.

MACRO VERSUS MICRO ENVIRONMENT

The macro environment refers to external forces that can affect an enterprise, sector, or
industry. These include economic, political, socio-cultural, and technological influences that are
usually beyond the management and control of a company or establishment. On the other
hand, the micro environment refers to factors that an organization directly affect its operations.
Thus, it is critical that companies as well as industries understand the dynamics involved in the
operations of their businesses in both the macro and micro contexts.

Thus, the law of supply and demand as well as the concept of scarcity us used to
simplify understanding of tourism economics. The tourist represents the demand side; while the
tourist product represents the supply side. Demand refers to wants and needs of a tourist. The
supply refers resources made available to meet the demand and expectations. For examples,
families with young kids are increasingly attracted to take cruise ship tours. They represent the
demand for ship facilities and amenities that cater to both adults and children. The supply can
be represented by the Disney Cruise Lines where the destinations, on board entertainment and
activities are based on its well-loved cartoon characters, musicals and movies.

LAW OF DEMAND
There is an inverse relationship between price and quantity purchased. This means that if the
prices of goods and service increase, then the demand for these decreases.

TOURISM DEMAND
It deals with the capacity and willingness of a tourist to buy tourism product offerings and
services. It also describes how much of these products and services will be purchased at a
specific price. Demand is driven by tourist.

Mathieson and Wall, define tourism demand as “the total number of persons who travel,
or wish to travel, to use tourist facilities and services at places away from their places of work
or residence.” This means that demand for travel us different from the demand for specific
tourism products.

For economist, tourism demand is measured in money received and used within a given
period of time. Price, quality, sales, revenues and expenditures are commonly used as the basis
for the analysis and measurement. On the other hand, psychologists review motivation,
behavior, personality, and the environment to come up with a composite picture of tourism
demand.
You can also study tourism demand by reviewing the choices travelers make. This refers to the
concepts of demand substitution, redirection, and generation.
 Demand Substitution. Is about your decision to replace one activity with another. For
example, you take a cruise instead of plane to visit your friends.
 Demand Redirection. This takes place when you replace one tourism product for
another. For example, instead of flying to Spain and Italy, you decide to go Greece and
Turkey.
 Demand Generation. This refers to interest created by new tourism products. For
example, the “discovery” of the rice terraces in Antique has redirected interest from the
Cordillera to this province.

FACTORS AFFECTING TOURISM DEMAND

1. Economic. The main economic factors affecting tourism are the cost of travel, prices
of goods and services, and the foreign exchange rates.
2. Geographic. These factors include the accessibility of the destination and the
seasonality of the available attractions and recreational activities. The location- whether
it is in the city suburbs, or the provinces – will likewise affect the industry.
3. Political. These factors refer to government laws on visas, immigration, customs,
taxes and health policies. In addition, embassy advisories for or against a destination
can either encourage or hinder tourist arrivals.
4. Perception of the Destination. These intangibles are the most challenging to
manage. Image, credibility and branding can affect a traveler’s perception even before
he arrives at the destination. Safety and security issues will also impact travel decisions.

Philippine Tourism Demand

According to statistics generated by the Department of Tourism, the main source of markets for
foreign visitor arrivals are from Asia, North and South America, Europe, and Australia. Data was
culled from arrival and departure cards as well as from sea manifests.

The Department of Tourism also reported that the top 5 visitor markets, in terms of countries,
for the period 2017-2018 are from Korea, China, USA, Japan, and Australia. The results were
also generated from arrival and departure cards as well as from sea manifest.

Tourism Supply
If tourism demand is about what a traveler wants or needs, then tourism supply consists of the
possible products and services to satisfy that requirement. Tourism supply represents the
quality and range of products and services that the destination or host community can offer at a
given price. The correlation between price and the quantity supplied is called the supply
relationship.

Factors Affecting Tourism Supply

1. Political. These are factors that refers to government support for tourism investment,
such as tax holidays, and export and import regulations.
2. Technological. The availability of sophisticated equipment and innovative techniques
allow more participation in tourism initiatives.
3. Geographical. The accessibility of the destination, climate, and the natural
environment affects tourism supply.
4. Social. The hospitality and warmth of the locals, their communication skills and their
interest to showcase their tradition and culture.
5. Legal. These are laws and regulations, policies and procedures that affect the
construction, development and establishment of tourism enterprise.