University towns with major football programs experience an increase in demand for hotel rooms during home football weekends. Hotels respond to the increase in
demand by increasing the prices they charge for rooms. Periodically, there is an outcry against the higher prices, accompanied by accusations of “price gouging.”
a. Draw a demand and supply graph of the market for hotel rooms in Boostertown for weekends with home football games and another graph for weekends without home football games. If the Boostertown city council passes a law stating that prices for rooms are not allowed to rise, what would happen to the market for hotel rooms during home football game weekends? Show your answer on your graph.
b. If the prices of hotel rooms are not allowed to increase, what will be the effect on out-of-town football fans?
c. How might the city council’s law affect the supply of hotel rooms over time? Briefly explain.
d. University towns are not the only places that face peak and nonpeak “seasons.” Can you think of other locations that face a large increase in demand for hotel rooms during particular times of the year? Why do we typically not see laws limiting the prices hotels can charge during peak seasons?