Shin Likes to Spend a (Relatively Small)portion of His Income

question 28

Essay

Shin likes to spend a (relatively small)portion of his income on vacations to Cabo San Lucas (a popular resort area in Mexico).On these trips,he either stays at a four star resort with panoramic ocean views or a more modest,and slightly deteriorating hotel in the noisy part of town.Understandably,the four star hotel is significantly more expensive.Suppose that the four-star hotel costs $5000/trip while the hotel costs just $500/trip.In recent years,the price of airfare has risen significantly,a change that effects the cost of his trips the same regardless of where he stays.Suppose that airfare has increased from $300/trip to $1000/trip.Why is it that following the higher travels prices,Shin is likely to spend more of his vacations at the four star resort when he travels.(Assume that the hotel rates and Shin's preferences are fixed).

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Definitions:

Prolonged Unemployment

Prolonged unemployment refers to an extended period during which an individual remains jobless despite actively seeking employment, often leading to significant economic and psychological consequences.

Labor Skills

The abilities and expertise that workers possess, which determine their employability and efficiency in performing specific tasks.

Inflation Rate

The rise in the cost of goods and services across an economy over a specific period, expressed as a percentage.

Potential GDP

An estimate of the maximum level of economic activity that an economy can sustain over the long term without increasing inflation.