Pearson New International Edition International pcl tp indd 1

FRONT OFFICE SEMANTICS
Law of supply:
Concept of economics that recognizes when demand is held constant, an increase in
supply leads to a decreased selling price. Conversely, when demand is held constant, a decrease 
in supply leads to an increased selling price.
Now, assume that a new hotel with 200 rooms opened in the city. If the demand
for rooms remained the same, the occupancy levels for the hotels would now be 50
percent (600 rooms 
[1,000 rooms 
200 rooms] 
50 percent). Again, prices for
hotel rooms would likely be affected by the laws of supply and demand. In long term,
new hotel openings (which create additions to supply) and hotel closings (which
yield reductions in supply) affect the number of rooms available to sell. Therefore, if
demand is unchanged, the pricing strategies for these rooms will likely be affected.
The supply (number) of rooms in a market area is relatively easy for revenue
managers to assess. When they have determined the amount of supply and have
accurately estimated room demand, effective pricing decisions can be made. If,