Tourism Industry Overview and Impact

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Questions and Answers

What does the tourism multiplier formula $K = \frac{E}{y}$ represent?

The total income changes minus tax from tourist expenditure

The relationship between tourist spending and overall economic growth (correct)

The proportion of wages paid to employees from initial tourist spending

The direct expenses incurred by local businesses

What is considered 'leakage' in the context of the tourism multiplier effect?

Local businesses paying employee wages

Money spent by tourists on local services

Income generated from local businesses' purchases

Money that exits the local economy for imports (correct)

Which of the following stages does NOT occur after a tourist's initial expenditure?

Local businesses pay taxes on profits (correct)

Local businesses purchase materials

Employees receive wages from local businesses

Local providers receive income

What primarily happens when local businesses receive income from tourist spending?

They purchase raw materials and inputs Signup and view all the answers

How do tourists' initial expenditures indirectly affect the local economy?

By creating a chain of financial transactions within local businesses Signup and view all the answers

Which of the following describes an indirect component of the tourism and hospitality network?

Travel agencies that market travel packages Signup and view all the answers

What is one of the supply components of tourism and hospitality?

Visitor attractions Signup and view all the answers

Which type of tourist accommodation includes shared facilities and communal living spaces?

Hostels Signup and view all the answers

Which classification of hotels typically caters to high-end clientele with premium services?

Luxury hotels Signup and view all the answers

What is a basic standard requirement for restaurants?

Health and safety regulations Signup and view all the answers

Which category includes airlines and hotels?

Direct Providers Signup and view all the answers

Which of the following is NOT considered a support service in the travel industry?

Travel agencies Signup and view all the answers

Which organizations are included in the developmental organizations category?

Government agencies and planners Signup and view all the answers

What is a primary function of support services in the travel industry?

Assisting direct providers Signup and view all the answers

Which component in the travel industry is primarily responsible for the development of policies and funding?

Developmental organizations Signup and view all the answers

Which category includes elements like climate and landforms?

Natural Resources Signup and view all the answers

What type of component does 'water supply systems' belong to?

Infrastructure Signup and view all the answers

Which of the following is NOT classified as a superstructure?

Gas lines Signup and view all the answers

Which transportation mode is included in the category of Transportation and Transportation Equipment?

Buses Signup and view all the answers

Which aspect is part of Hospitality Resources?

Resident attitudes towards visitors Signup and view all the answers

What is the primary role of tourism and hospitality as described in the economic impact section?

It serves as an export industry. Signup and view all the answers

What do direct effects of visitor spending include?

Income received by local businesses. Signup and view all the answers

How do secondary effects from tourism spending manifest?

They arise from income used for local supplies and wages. Signup and view all the answers

What does the term 'multiplier' refer to in the context of tourism's economic impact?

The total effect of external income in an economy. Signup and view all the answers

What is the significance of the tourism multiplier?

It evaluates combined direct and secondary effects of tourist spending. Signup and view all the answers

What does the value of 'K' represent in the tourism multiplier formula?

The multiplier effect on income Signup and view all the answers

Which factor would likely increase the tourism multiplier effect?

Greater local sector linkages Signup and view all the answers

In developed economies, what is the typical range for the income multiplier?

1.7 to 2.0 Signup and view all the answers

Which step is NOT part of determining the cost-benefit ratio for tourism development?

Calculate government income tax Signup and view all the answers

What does a higher proportion of tendency spent abroad indicate for the tourism multiplier?

Reduced multiplier effect Signup and view all the answers

What is a primary consideration for destinations before implementing an incentive strategy?

The performance of similar schemes in other countries Signup and view all the answers

Which of the following is NOT a common form of incentive for attracting investment?

Guaranteed transportation services Signup and view all the answers

What type of incentive allows for favorable tax conditions for a maximum of 20 years?

Guaranteed stabilization of tax conditions Signup and view all the answers

What is one of the goals destinations should have when designing investment codes?

To establish clear objectives and requirements Signup and view all the answers

Which incentive can cover up to 30% of capital costs for businesses?

Grants Signup and view all the answers

What is a potential economic consequence of increased tourism demand?

Economic instability Signup and view all the answers

What does the theory of balanced growth emphasize?

Integration of tourism with other industries Signup and view all the answers

Which economic strategy involves promoting local production to minimize money leakage?

Import substitution Signup and view all the answers

What is the key focus of the unbalanced growth theory?

To use tourism as a driver for growth Signup and view all the answers

What can result from the imposition of quotas or tariffs on imported goods?

Promotion of local industries Signup and view all the answers

Which natural resource is essential for a comfortable climate in tourist destinations?

Comfortable temperature and humidity Signup and view all the answers

What quantity of pure water is typically required for resorts per room per day?

350-400 gallons Signup and view all the answers

Which infrastructure component is most critical for ensuring public health during tourism?

Healthcare facilities Signup and view all the answers

Which of the following is considered a unique natural feature that can attract tourists?

Waterfalls Signup and view all the answers

What infrastructure element is necessary to support proper sanitation for tourists?

Sewage/drainage systems Signup and view all the answers

Which aspect of scenery can enhance a tourist destination's attractiveness?

General topography and natural features Signup and view all the answers

Which of the following is NOT a key infrastructure component for tourism destinations?

Agricultural facilities Signup and view all the answers

What kind of climate can influence comfort levels for tourists, especially in tropical zones?

Wind currents Signup and view all the answers

What is one primary reason developing countries focus on tourism and hospitality for economic growth?

They need foreign exchange for economic development. Signup and view all the answers

Which of the following factors is NOT primarily economic in determining the demand for pleasure travel?

Established travel routes. Signup and view all the answers

How can tourist-receiving countries manipulate exchange rates to attract tourists?

By making the local currency weaker for tourists. Signup and view all the answers

Which sector does NOT directly benefit from tourism and hospitality?

Manufacturers of household electronics Signup and view all the answers

What distinguishes tourism and hospitality from other export industries?

It provides social and cultural benefits alongside economic returns. Signup and view all the answers

What happens to the demand for tourism and hospitality when incomes rise in developed countries?

It increases at a faster rate. Signup and view all the answers

In what way do tourism and hospitality differ from international trade concerning product delivery?

The product is consumed in the exporting country. Signup and view all the answers

What is a key characteristic of the demand for international tourism?

It is both price elastic and income elastic. Signup and view all the answers

Study Notes

Tourism Industry Network

The tourism industry encompasses both public and private enterprises.
The industry can be categorized into three components: direct providers, support services, and developmental organizations.
Direct providers include businesses like airlines, hotels, restaurants, ground transportation, travel agencies and retail shops.
Support services include contract food services, contract laundry, food suppliers, tour organizers and travel publications.
Developmental organizations include planners, government agencies, financial institutions, real estate developers, and educational and vocational training institutions.

Economic Impact of Tourism

Tourism and hospitality acting as an export industry generates revenue from outside sources.
Tourist spending directly increases economic activity in the host area.
The industry significantly impacts a destination by providing income, employment, and foreign exchange.

Direct and Secondary Effects of Visitor Spending

Direct effects are income received by businesses like hotels, restaurants, car rentals, tour operators, and retail shops that cater to tourists.
Indirect or secondary effects are businesses using that income to pay for supplies, wages, and other items needed to produce goods or services.

The Tourism Multiplier

The tourism multiplier estimates the combined direct and secondary effects of tourist spending on a country's economy.
The formula for the multiplier is: $K = \frac{E}{y}$, where K is the multiplier, y is the change in income generated, and E is the initial change in expenditure.
The diagram illustrates the tourism multiplier effect, showing how an initial expenditure by a tourist generates a larger impact on the local economy.

Tourism and Hospitality Supply Components

Tourism and hospitality supply components are categorized into five main types: natural resources, infrastructure, superstructure, transportation and transportation equipment, and hospitality resources.
Natural resources encompass elements like climate, landforms, terrain, flora, fauna, bodies of water, beaches, natural beauty and water supply.
Infrastructure consists of water supply systems, sewage disposal systems, communication systems, transportation terminals, and power supplies.
Superstructure consists of airport buildings, passenger terminals, hotels, motels, resorts, entertainment places, and shopping centers.
Transportation and transportation equipment include ships, airplanes, trains, buses, and automobiles.
Hospitality resources encompass aspects like a welcoming spirit of tourist employees, resident attitudes towards visitors, and a willingness to serve.

Foreign Exchange Incentives In Tourism

Many countries implement restrictions on spending to maximize foreign exchange earnings.
Tourists may be required to pay hotel bills in the local currency or show sufficient funds before entry.
Incentive strategies for destinations should be based on the examination of similar schemes in other countries, research of specific needs of investors, and design of investment codes with clear objectives and requirements for investors.
Common forms of incentives include: tax exemptions/reductions, reduced company taxation, tax holidays, guaranteed stabilization of tax conditions, grants, subsidies, loans at low interest rates, provision of land, and free and unrestricted repatriation of invested capital.

Tourism Multiplier Formula and Cost-Benefit Ratio

The tourism multiplier measures the total effect (both direct and secondary) of an external income source introduced into an economy.
Determining the cost-benefit ratio of tourism development involves several steps: determining where the tourist dollar is spent, calculating the percentage of each expenditure that leaves the local economy, deriving a multiplier effect ratio, applying the multiplier effect to the tourist expenditures to calculate total benefits, calculating a cost-benefit ratio (dollars received/dollars spent), and applying cost-benefit ratios to tourist expenditures to estimate income and costs for both the public and private sectors.
The income multiplier ranges differ between developed and developing economies: 0.6 to 1.2 for developing economies and 1.7 to 2.0 for developed economies.
The size of the multiplier depends on the extent to which economic sectors are linked.

Indesirable Economic Aspects of Tourism

Undesirable economic aspects of tourism and hospitality include higher prices and economic instability.
Increased demand and imports can lead to higher prices for residents on products and services.
Pleasure travel is a discretionary item, susceptible to fluctuating income, and can result in economic instability.

Maximizing the Economic Effect of Tourism and Hospitality

Economic growth theories include balanced growth and unbalanced growth.
Balanced growth proponents suggest integrating tourism and hospitality with other economic activities.
Unbalanced growth proponents suggest emphasizing increased demand through robust development and local production of tourism and hospitality goods and services.
Economic strategies for maximizing the economic benefit of tourism and hospitality include import substitution.

The Role of Tourism and Hospitality in Economic Development

Several developing countries have used tourism and hospitality development to help economic growth.
There is continuous demand for international travel in developed countries and as income in developed countries increases, the demand for tourism and hospitality also increases at a faster rate.
Developing countries need foreign exchange to aid their economic development.
The OECD concluded that tourism and hospitality provides a major opportunity for growth to countries that are at the intermediate stage of economic development.
Tourism and hospitality is an invisible export that differs from international trade.
In tourism and hospitality, the consumer collects the product from the exporting country, thereby eliminating freight costs for the exporter.
The demand for pleasure travel is largely dependent on non-economic factors like local disturbances, political unrest, and changes in the fashionability of resorts/countries.
Using specific fiscal measure, the exporting or tourist-receiving country can manipulate exchange rates.
Tourism and hospitality directly affects sectors like hotels, shops, restaurants and local transport firms, and indirectly affects many other sectors like equipment manufacturers and utilities.
Tourism and hospitality brings many non-monetary benefits and costs, such as social, cultural, and environmental benefits and costs.

Natural Resources and Infrastructure for Tourism Destinations

Natural resources that attract tourists include scenery, climate, water and unique features.
Infrastructure that attracts tourists includes water system, communication networks, healthcare facilities, transportation terminals, power supplies, sewage/drainage, streets/highways, security, and additional resources like shopping and historical sites.

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Description

This quiz explores the structure and economic impact of the tourism industry. It covers the various components, including direct providers and support services, and discusses how tourism acts as an export industry, generating revenue and employment. Test your knowledge on the significant effects tourism has on destinations.