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Supply and Demand and Tourism

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    The republic of Maldives is a nation of islands looping the equator, at the center of the Indian Ocean. It is a natural paradise, a world of intensely simple beauty, a place that will captivate the mind and rest the human’s spirit. The Maldives is that sort of place fascinating some of, frustrating for others. When the very first airport was made in “Hulhule”, some U. N experts arrived Maldives to look into the feasibility of tourism in Maldives. U. N experts conclude in 1966 that there was no future for tourism in the country. Then in 1971 George Corbin, an Italian interested about Maldives met a Maldivian name Ahmed Naseem.

    Their efforts resulted the arrivals of first tourist group to Maldives. Now Maldives is a renowned tourist destination worldwide, entered the tourism industry with very humble beginning in the 1970s. Tourism is the largest economic industry in the Maldives, since it plays a vital role in earning foreign exchanges to the country. Even though some disadvantages are there in tourism, there is also happening to have wide range of advantages to it. It opens a market for traditional handicraft and this provides the islanders with a suitable wage to get by.

    It also provides numerous job opportunities to the Maldivians who work in this particular industry directly. Like the people working in islands. The archipelago of the Maldives is the one of the basis as to why many tourists are attracted to visit the Maldives. The government of Maldives has increase the tax that has been taken by the tourist named as tourism goods and service tax, to 6% to 8%, by saying Maldivian tourism didn’t get expected state revenue. Minister Ahmed Adheeb said that the tourism industry will not earn the expected revenue for the year which the International Monetary Fund (IMF) had also pointed out. The expected amount from lease rent will not be acquired within the year. This is about MVR500 million. We are looking for ways to compensate for the loss. Discussions for the issue will start within next week,” Adeeb said. Although Deputy Minister for Tourism Mohamed Maleeh Jamal has discusses to promote Maldives and Sri Lanka jointly. Maleeh said that the brand of tourism promoted by Sri Lanka and that of the Maldives are different. “Maldivian tourism and Sri Lankan tourism are very different. Most tourists visit Sri Lanka to experience the cultural and traditional attractions.

    But on the contrary, tourists visit the Maldives to see the natural beauty of the country and the underwater scenery. The Caribbean region markets their tourism collectively, and very good results have been yielded from it,” Maleeh said. British tourists visit Sri Lanka currently more than they do to the Maldives, but the Tourism Ministry pointed out that despite that the Maldives and Sri Lanka is not competitive markets and that tourists visiting Sri Lanka are not of the same standard as that of the Maldives. Demand on tourism Demand in desire to buy a product or service, ability to pay or willingness to pay.

    Tourism demand in the total number of persons who travel, or wish to travel, to use tourist’s facilities and services at places away from their places of work or residence. (Mathieson and Well (1982)) DEMAND CURVE Above the curve D is the demand curve. The curve shows, how quantity demand stays in different prices. For example when price was 5, 20 people are willing to pay that amount. And the price was 1, 100 peoples are willing to pay the amount. Such that demand increases when the price was at lower price. And price was higher few are willing to pay.

    Customer demanded for the product or service according to the affordable price and quality of the service that they offer. In tourism most of customer (tourists) might look for the prices. However there is some tourist to visit some other purpose. For an example most tourists visit Sri Lanka to experience the cultural and traditional attractions. But on the contrary, tourists visit the Maldives to see the natural beauty of the country and the underwater scenery. Such that by looking the prices and the services and the quality service they offer, the tourist finalized where they should go to spend their vacations.

    Major markets on tourism for Maldives Europe continues to hold the position of traditional market leader in the Maldives tourism industry with nearly 64% of total arrivals in 2010, However, over the last five years, Europe’s share has decreased by 12% due to the emerging Asian markets. Arrivals to the Maldives from Asia & the Pacific region have been increasing rapidly over the years, with an annual average growth rate of nearly 31% from 2006 to 2010. Asian markets have been performing very well over the last five years. While market share of African region remained consistent over the last five years.

    Americas strengthened its market share from 1. 8% in 2006 to 2. 3% at the end of 2010. Americas have been performing well over the years registering positive growths. Market share of Middle East region increased steadily from 2006 till 2009 and remained constant at the end of 2010. Saudi Arabia remained as the market leader in the Maldives from this region. However increase tax as taken as tourism goods and service tax, might reduce amount of customers visit to Maldives. Although, Central bank Maldives Monetary Authority (MMA) has said that the tourism sector will not be affected by the imposition of TGST of 8 percent on the sector.

    Speaking at the Parliament Budget Committee, MMA Governor Fazeel Najeeb said that, “I don’t think it would be a problem if tourists are asked to pay tax of 8 percent. IMF said that it would not affect the number of tourist arrivals,” Fazeeel said. “Some countries impose 25 or 30 percent tax. A hotel we recently stayed at in Mumbai took tax in addition to GST. So I don’t think it’d be a problem for tourists. ” We haven’t look for what other country is doing with their taxes. Our country is mostly belongs to tourism sector. 1/3 of GDP in Maldives belongs to tourism sector.

    So to increase the wealth, and to stand as same we have to offer low taxes and barriers to tourism sector. This will brings more benefits to our nation, Maldives. While offer low taxes and low barriers will leads to, investors to come and invest in Maldives. Increasing investments done in Maldives will lead more wealth to Maldives. However offering lower taxes and low barriers might influence the government. Reduce the amount money might leads to lower government helps to citizens. Price elasticity of demand Price elastic of demand reflects the responsiveness of quantity demanded for a product when its price changes (Sloman, 2007).

    Price elasticity of demand is a measure of how the quantity demanded will change for a unit change in price. This is an important aspect of the demand curve of a product, and hence the demand behavior of the product. The price elasticity of demand is found by dividing a certain change in quantity by the change in price which caused it. The changes are always proportionate, or percentage based, meaning that the elasticity of demand has no units and hence does not depend on the units of quantity or demand. Demand is said to be. * elastic when Ed > 1, * unit elastic when Ed = 1, and Inelastic when Ed < 1 Price elastic demand In price elasticity of demand, prices raise demand will fall. Customer chooses other substitute goods. Although in tourism if prices raise or imposed tax rise tourists find other location to stay as their holiday. Such that increasing TGST to 8% might affect tourism industry. ,

    Central bank Maldives Monetary Authority (MMA) mentions that the tourism sector will not be affected by the imposition of TGST of 8 percent on the sector. He told “Some countries impose 25 or 30 percent tax. A hotel we recently stayed at in Mumbai took tax in addition to GST. However increasing tax will affect in tourism industries. Increase tax will increase the price so attract more customers have to decrease the price. Increasing the price might affect the tourism industry. Price inelastic demand An economic term used to describe the situation in which the supply and demand for a good are unaffected when the price of that good or service changes. Most of Europeans comes to see the natural beauty of Maldives, under water beauty and white sandy beaches. Such that who visit to Maldives to see natural beauty they might come, whatever price they allowed.

    However increase in price will affect the demand. People come as triple times in a year to see natural beauty, will affect their demands. While increase in price will affect numerous times that they come. On the above I mention tourist was almost lower than then the leisure travellers. It means most of tourists come as leisure travellers. Such that almost all the leisure has price elastic demand. They will travel where lower cost and better service offers. Supply on tourism Supply means the quantities of goods and services made available for sale at a fixed price in a fixed period of time.

    This fixed period of time depends upon the nature of goods and may be a day, a week, a year and more. Fixed price indicates the cost of production and a normal profit. In economics, free goods are not included in supply. The availability of goods will be known as supply only when income is earned from sale. Because the economic activities may not be continued further and process stops. On the other hand, if the goods are produced and are kept for sale use, then also it may not be called supply. Therefore, the list of goods which are brought to the market for sale at different price are known as the supply.

    A supply curve is drawn assuming ceteris paribus. i. e. that all factors influencing supply are being held constant except price. If the price of the good varies, we move along a supply curve. In the diagram above, as the price rises from P1 to P2 there is an expansion of supply. If the market price falls from P1 to P3 there would be a contraction of supply in the market. Businesses are responding to price signals when making their output decisions. In tourism supply was the services that they offer. Some of people said that supply in tourism never changes.

    It remains same as well as increases the occupancy of the hotel or resort. However increasing tourism goods and service tax from 6% to 8% might not affect the supply of the tourism industry in Maldives on short run. Increase in tax will affect in demand of the tourism. This will affect the tourism of Maldives. Suppliers supply the service or the product according to the prices and demand. However increase in tax will influence in demand of the tourism industry. So on long run investors not steady ready to invest in Maldives. Conclusion

    Maldives is a destination where tourists visit Maldives to see natural beauty of the country and the underwater scenery. However increase in the TGST might affect the tourism industry in the Maldives. Tourists might change their destination. Although tourism Minister Adeeb said government didn’t get expected revenue from tourism industry. So to increase revenue they have to increase the TGST. Deputy Minister of tourism Maleeh says, Maldives have to promote Sri Lanka jointly to increase the number of tourist arrives. He told that Maldives and Sri Lanka are two different destinations.

    Tourist visits Sri Lanka are not same purpose who visits in Maldives. One of the Directors of Universal group, Mohamed Umar Manik has said that the most important step for Maldives is to increase the bed capacity of resorts in order to boost the amount of tourists visiting the country. Taking to Haveeru recently, MU Manik said the bed capacity has to be increased if the Maldives wants to increase the amount of tourists. “Our tourism will grow as much as we allow the increase of beds. About two or three percent growth is observed. Hence if that growth cannot be attained, it is a loss for us.

    Beds should increase with the amount of visitors. It is a must. Developing the resorts already planned is the most important thing we can do for now,” MU Manik said. It might increase the demand they Maldives have to increase the bed capacity as well as quality service have offer at lower costs. Increase in tax is not only gain more state revenue, they have to increase the amount of supply. Increase taxes might affect in tourism industry. Increasing TGST 6% to 8% might not affect the demand for the tourism industry as much. However increasing taxes is not the way to increase state revenue.

    Reference

    * Third Tourism Minister plan, Tourism outlook of Maldives, http://www.tourism.gov.mv/downloads/TTMP_Review_REPORT_Jan_2012.pdf * Maldives economy, 2008. Economical impacts on tourism http://www.maldiveisle.com/economy.htm * Enotes, 2007. Impacts on tourism, http://www.gawler.sa.gov.au/webdata/resources/files/5_Gawler_Impacts_Tourism.PDF * International tourism to continue robust growth in 2013, http://media.unwto.org/en/press-release/2013-01-28/international-tourism-continue-robust-growth-2013

    * Tourism year book 2011. Ministry of Tourism, Arts and Culture

    * Travel and tourism economic impacts 2012 Maldives. World travel and tourism council * Increasing TGST to 15 percent will not affect tourism: MMA http://sun.mv/english/8164
    * Economic analysis for tourism (book from FMC library)

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