Product Utility
The utility is the measure of the satisfaction that a customer derives from consuming a good or service. Though it is hard to measure, it is generally agreed that customers are always seeking to maximize the utility of the goods and services they have an interest in. Different goods and services offer different levels of utility to consumers. Caesars Palace, for instance, is a luxury hotel and Casino based in Las Vegas US and attracts high-end clientele keen on luxury, entertainment, and gambling. Like other goods and services purchased by consumers, their clientele seeks satisfaction when they visit the place.
Caesars Palace offers suites that come with better facilities than the common “standard rooms”. Though they pay premium rates, clients get the comfort that satisfies the desire to live an above-average life. Additionally, corporations may seek other services such as conferencing facilities for purposes of convenience and exclusivity. The satisfaction derived by the two sets of clients therefore is the utility they are looking for from Caesars Palace.
Elasticity of Demand
According to Tucker (2010, p. 137), prices for services such as hotel rooms and airline tickets change all the time depending on the forces of supply and demand. Price elasticity, therefore, is dependent on economic conditions and numerous other external factors. The responsiveness in changes to price or income denotes elasticity of prices. In relatively elastic demand situations, the elasticity is normally greater than one unit and the quantity demanded changes by a larger margin or percentage than the price. In relatively inelastic demand situations, the elasticity of demand is less than one unit and the quantity demanded changes by a smaller percentage than price.
The hotel sector in which Caesar Palace falls mostly displays the former. Many people would prefer luxury hotel services. However, a high price is likely to discourage them from buying the services or seeking alternatives from substitutes. However, because the services are not a basic need, these consumers are only willing to pay if the price of luxury hotel services decreases even by a small margin.
Impact of a price change on a firm’s revenue
According to Sexton (2010, p. 158), the elasticity of demand has a significant effect on a firm’s revenue. A firm’s revenue can increase through decreasing the price of a good with elastic demand. In this case, a small decrease in prices leads to a relatively high demand for the services resulting in increased revenue. Revenue can also increase through increasing the price of a good with inelastic demand. In this case, an increase in the price leads to a relatively small decrease in the quantity of product demanded resulting in a very small dent in the revenue of the firm.
On the other hand, firms can experience decreased revenue through increasing the price of goods or services with elastic demand. Price increase leads to relatively larger decrease in quantity of the services on demand hence decreased revenue. Also, revenue can decrease through decreasing the price of a good with inelastic demand. A decrease in price will lead to relatively small rise in the quantity demanded that will do little to plague the revenue shortfall (Bernanke, B. (2003, p. 92).
Demand for hotel services offered at Caesars Palace experience elastic demand. Because the price elasticity of these services is mostly greater than one unit, an increase in price reduces revenue while a reduction in price is likely to raise revenue. Reduction of price will in this case lead to a relatively high demand for hotel services, increasing revenue, while an increase of prices will lead to relatively low demand for hotel services, thus lowering revenue.
References
Bernanke, B. (2003). Principles of microeconomics. New York: Cengage Learning.
Sexton, L. R. (2010). Exploring Economics. New York: McGraw Hill.
Tucker, I.B. (2010). Microeconomics for Today. New York: Routledge.