Covid 19 and Tourism in the United Kingdom
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Covid-19 and Tourism in the UK
Introduction
Since the onset of the COVID-19 pandemic in 2020, the tourism sector in the United Kingdom has been one of the worst affected sectors (Sigala, 2020). Some countries imposed travel restrictions against residents of the worst-hit countries, including the UK (Durbarry, 2008). This has made it impossible for the residents of the UK to travel to these countries. Most of the UK’s tourism lovers have been forced to resort to UK-based destinations (Camilleri, 2018). This together with non-English tourists coming to visit the UK has greatly increased demand for UK holidays.
Economists use a tool known as the “traditional demand curve” to illustrate the influence that pricing has on the quantity of a good or service. The traditional representation of the demand curve is a line that slopes downward and to the right. It provides the marketing manager with an indication of the number of units that the market will buy in a specified time period at a variety of prices that may be offered for the product (Qiu et al., 2020). Demand and price are related to one another in a manner that is inversely proportional. That is, when prices are higher, there is a corresponding decrease in demand, but when prices are lower, there is an increase in demand.
The demand curve has an upward slope when referring to premium products. People have the tendency to believe that a higher price indicates a product with a higher quality. It’s possible that people will believe the premium goods offer greater value. In these kinds of situations, demand may actually rise as prices rise; however, beyond a certain point, the curve reverts to its more conventional slope. In the airline sector, an example of such a product might be the first- and business-class seats that are offered on some aircraft (Camilleri, 2018).
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A “market failure” is a condition in economics considered to inefficient distribution of goods and services in an economy. As a result of market failure, individuals’ self-interested actions do not produce optimal results for society as a whole. In other words, each person makes the optimal decision for themselves, but the group’s decision is flawed because of it (Ledyard, 2022). This is shown as a steady-state disequilibrium in traditional microeconomics, where supply and demand are shown to be out of sync. By allowing consumers and entrepreneurs who are in direct competition with one another to bring the market closer to equilibrium over time, perfect competition is said to be able to correct market failures. Close but never quite there: the market’s pursuit of equilibrium (Bator, 2022). This is because of the bounds of human understanding and the dynamic nature of the real world. To compensate for what they see as the market’s flaws, some economists and policy specialists suggests a laundry list of likely involvements and guidelines. Inefficient outcomes have been used to justify a wide range of market distortions, including tariffs, grants, redistributive or corrective duty, revelation obligations, trade limits, price floors and ceilings (Wallis & Dollery, 2022).
According to the definitions above, this is not a market failure case. The UK government intervention to regulate the spread of the disease to its residents is aimed at maintaining a constant number of its consumers (Grace, 2021). According to neoclassical theory, the government of the United Kingdom utilized asymmetric information, which means that the government had access to pertinent information that the other people in the area did not have. In order to ensure the safety of its territories, it was necessary to impose restrictions on the entry and exit of all tourists. It is believed that two phenomena, namely adverse selection and moral hazard, are to blame for the inability of the health insurance market for covid-19 to function properly. In the event of adverse selection, which occurs when a government is unable to differentiate between those who are sick and those who are healthy, only those who are sick will seek assistance (Barge-Gil & Modrego-Rico, 2018). A person who has been immunized against disease may alter their behavior and expose themselves to greater danger if they are faced with the moral hazard that comes with believing that they are immune to the disease. In the short term, this could be interpreted as a boost to the market’s overall growth. On the other hand, in the long run, the United Kingdom is protecting all of its consumers from unforeseen disasters (Nelson, 2022).
The relationship between the government and the market cannot be severed. The legal and institutional frameworks within which markets operate are both set by the government of the UK. It does this by increasing taxes based on the actions of businesses and customers in the market, which causes prices to generally go up (Mazzucato & Ryan-Collins, 2022). In this way, the government of the United Kingdom hopes to encourage the market to provide certain goods and services for the benefit of society as a whole. In addition, it is seeking to discourage tourism from other countries because of the wider negative effects that it has. These connections and conflicts are indispensable components of a contemporary market economy.
The basic economic principle of supply and demand states that when the price of a product or service increases, its demand also goes up. In other words, consumers are willing to pay more for a product when they realize there is an increase in its quality and value. The market for tourism-related goods and services is extremely fragmented. Each of the many market groups has its own unique elasticity and needs in terms of the services they require. These factors will have an impact on the pricing structure that is ultimately chosen.
Demand for business travel is typically less susceptible to fluctuations in supply and demand. Price swings will not have a significant impact on consumer demand in any significant way. The corporate travel market, on the other hand, has high standards for the level of service it receives. In general, those who are traveling for business are prepared to spend a higher price for the same kind of services. The increased prices will not only be used to defray the costs of providing a greater level of service but will also provide the impression that this is a premium and prestigious product (Grace,2021).
A pricing policy is said to be uniform if there is not much of a change in the price that is paid for a particular product when moving from one market segment to another. It has been previously stated that if the promotional fares are hiked, the demand from price-sensitive passengers will diminish, which will lead to a decrease in overall demand. If this happens, the airline would be in a bind because it won’t be able to cut its overhead expenditures, which is a significant portion of its operating expenses. As a consequence of this, the remaining passengers will be required to shoulder a bigger amount of the airline’s overhead costs in order for the airline to continue to generate a profit.
References
Barge-Gil, A., & Modrego-Rico, A. (2018). Are technology institutes a satisfactory tool for public intervention in the area of technology? A neoclassical and evolutionary evaluation. Environment and Planning C: Government and Policy, 26(4), 808–823. https://doi.org/10.1068/c70m
Bator, F. M. (2022). The Anatomy of Market Failure. The Quarterly Journal of Economics, 72(3), 351–409. https://doi.org/10.2307/1882231
Camilleri, M. A. (2018). Tourism supply and demand. In Travel marketing, tourism economics and the airline product (pp. 139-154). Springer, Cham.
Durbarry, R. (2008). Tourism taxes: Implications for tourism demand in the UK. Review of Development Economics, 12(1), 21-36.
Grace. (2021). Market failures and policy responses. Sustainable Investing and Environmental Markets, 2(2), 15–34. https://doi.org/10.1142/9789814612449_0002
Ledyard, J. O. (2022). Market failure. Allocation, Information and Markets, 4(2), 185–190. https://doi.org/10.1007/978-1-349-20215-7_19
Mazzucato, M., & Ryan-Collins, J. (2022). Putting value creation back into “public value”: From market-fixing to market-shaping. Journal of Economic Policy Reform, 25(4), 345–360. https://doi.org/10.1080/17487870.2022.2053537
Nelson, R. R. (2022). Building effective ‘innovation systems’ versus dealing with ‘market failures’ as ways of thinking about technology policy. The New Economics of Technology Policy, 4(3), 34–66. https://doi.org/10.4337/9781848449169.00007
Qiu, R. T., Park, J., Li, S., & Song, H. (2020). Social costs of tourism during the COVID-19 pandemic. Annals of Tourism Research, 84, 102994.
Sigala, M. (2020). Tourism and COVID-19: Impacts and implications for advancing and resetting industry and research. Journal of business research, 117, 312-321.
Wallis, J., & Dollery, B. (2022). Market failure and government intervention. Market Failure, Government Failure, Leadership and Public Policy, 2(2), 9–31. https://doi.org/10.1057/9780230372962_2