This document provides an introduction to the economics of tourism and hospitality. It defines key terms like leisure, tourism, and industry. It explains that tourism is not strictly an industry since standard definitions are based on what firms produce, not who they serve. The document also outlines some basic economic concepts like opportunity cost and discusses how economics uses scientific methods to study individual and group behavior.

1. 3203THS Tourism and
Hotel Economic Analysis
Dr Liz Fredline
Room: G27 3.29
Tel. 55528697
l.fredline@griffith.edu.au

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1. Definitions of leisure and tourism
2. What is the tourism ‘industry’?
3. The nature of economics
4. The methodology of economics
Unit 1: Introduction to the economics
of tourism and hospitality

3. Today’s Learning Outcomes
 Understand how tourism differs from other
industries
 Understand basic economic concepts
 Understand why it is important for tourism and
hospitality managers to study economics
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1. Definitions of leisure & tourism
Some working definitions:
 Leisure = discretionary time left
over after work, travel to work,
sleep, household and personal
chores
 Recreation = pursuits undertaken in
leisure time. Home based such as
reading, gardening, watching TV.
Outside the home such as cinema,
participating in or watching sport,
and travel & tourism.

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1. Definitions of leisure and tourism
(cont.)
Some working definitions:
 Tourism = visiting for at least
one night for business or
pleasure
 Recreation/Tourism/Hospitality
industry = aggregate of firms
that supply commercial
services to people engaged in
these activities.

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 ‘Industry’ is usually defined as a group of firms producing
a similar product, e.g. Agriculture or Mining
 This is a ‘supply-side’ definition.
 A Standard Industrial Classification (e.g. ANZSIC) provides
a framework for categorising all firms based on what they
produce.
2. What is the tourism ‘industry’?

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Where is the tourism ‘industry’ in the ANZSIC?
A Agriculture, Forestry and Fishing
B Mining
C Manufacturing
D Electricity, Gas, Water and Waste Services
E Construction
F Wholesale Trade
G Retail Trade
H Accommodation and Food Services
I Transport, Postal and Warehousing
J Information Media and Telecommunications
K Finance and Insurance Services
L Rental, Hiring and Real Estate Services
M Professional, Scientific and Technical Services
N Administrative and Support Services
O Public Administration and Safety
P Education and Training
Q Health Care and Social Assistance
R Arts and Recreation Services
S Other Services
Source: Australia and New Zealand Standard Industrial Classification 2006, Cat. No. 1292.0

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Supply-side vs demand-side
definitions:
 When we talk about the ‘tourism industry’ we
are referring to a wide variety of firms that serve
a particular type of customer, i.e. a tourist.
 This is a demand-side definition.
 But, standard industry data is collected from
firms based on what they produce (supply).
 National Accounts are based on supply-side
definitions of industries.

9. So how can we work out the output of
the tourism industry?
 Can we just add together all the things tourists
typically consume?
 E.g. hotel accommodation, restaurants,
shopping, attractions
 No – because non-tourists also purchase goods
from these industries
 Also, tourists sometimes purchase non-typical
goods and service
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10.  The International Visitor Survey (IVS)
samples 40,000 departing, short-term
international travellers aged 15 years
and over who have been visiting
Australia. The survey is conducted by
Computer Assisted Personal
Interviewing (CAPI) in the departure
lounges of the eight major
international airports: Sydney,
Melbourne, Brisbane, Cairns, Perth,
Adelaide, Darwin and the Gold Coast.
 The National Visitor Survey is
conducted with approximately 120,000
Australian residents aged 15 years and
over on an annual basis. Respondents
are interviewed in their homes using
random digit dialling and a Computer
Assisted Telephone Interviewing
system.
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Tourism Satellite Account

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Economics analyses the ways in which individuals,
groups and organisations use resources to
improve their well-being (Cullen, 1997, p.3)
3. The nature of economics
 Consumers try to maximise their utility (level
of satisfaction)
 Companies try to maximise profit
 Society tries to maximise general (social)
welfare

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The basic economic problem!
 The classic ‘consumer’s problem’ - limited
resources but unlimited wants! ??? Results
in scarcity and choice - in consumption and
production!

13. Or are we reaching Peak Stuff?
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Opportunity costs:
 Our limited resources can be used to make
(or buy) different goods or services.
 Opportunity cost = the alternatives
that must be forgone in order to
consume (or produce) a particular
good.
 Consumers consider the alternative
purchases they could have made with their
money
 Firms consider the alternative products or
services they could provide with the same
resources
 Governments consider the alternative
options for spending their budgets
Tokyo Olympics or flood
mitigation?

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The science bit: The social bit:
Adopts scientific methods of investigation. Dealing with individuals, firms and regional
economies - not inanimate objects.
Developing hypothesis about how individuals,
firms or regional economies will behave in
certain economic conditions.
Difficult to perform controlled laboratory
experiments.
Collection of data and use of statistical
analysis to test hypotheses.
Individual consumers and even firms
sometimes behave in apparently irrational
ways.
Hypothesis that are confirmed (over time)
become part of the principles (‘laws’) of
economics until disproved e.g. the ‘laws’ of
supply and demand.
Economics = a Social Science.
4. The methodology of economics

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Two main branches of economics:
 “Microeconomics deals with the behaviours of individual
economic units …[including] consumers, workers,
investors, owners of land, business firms. Microeconomics
explains how and why these units make economic
decisions” (Pindyck & Rubinfeld, 1992, p.3).
 “Macroeconomics …deals with aggregate economic
quantities, such as the level and growth rate of national
output, interest rates, unemployment, and inflation”
(Pindyck & Rubinfeld, 1992, p.3).

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Economic models:
 Economists build computer models to represent markets &
regional economies
 Models are simplified versions of reality and based on
assumed relationships between economic variables:
 e.g. if interest rates rise then borrowing will fall, ceteris paribus.
 e.g. if wage rates increase the cost, and eventually the price we
pay, for hospitality services will increase, ceteris paribus.
 Economic models allow us to predict the effects of changes
in government policy (airline deregulation) on an industry
sector or of a new development (a resort) on a regional
economy.

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Summary
 Tourism is not an industry in the way we
usually define them
 Opportunity cost is important for individuals,
firms and governments
 An understanding of economics helps tourism
and hospitality managers to survive in
complex economic environments