(a)[8]
Explain the meaning of cross-elasticity of demand and what these values show about the effect of changes in the price of flights to Barbados on
- hotel demand in Barbados (cross-elasticity value = –2.5). [4]
- flight demand to Antigua (cross-elasticity value = +0.5). [4]
(b)[12]
With budgetary and environmental pressures growing because more tourists were travelling to Barbados, the government announced a new indirect tax on incoming tourists in June 2018. Discuss the likely effectiveness of the new indirect tax in raising tax revenue and reducing tourist numbers.