Economics can be applied to so many areas. In previous posts I have looked at a work day, a trip to the supermarket, going on a date and working out. In this post I will look at how economics can be applied to going on holiday. I recently posted about my trip to Uluru. I looked at how economics was applied on that particular trip. Today I am going to take a more general approach to going on holiday. This post because of the amount of content has been split into two parts. Part 1 will cover the preholiday questions:
- Where shall we go?
- How shall we get there?
- Book or not to book in advance?
- Taking care of matters at home.
Where shall we go?
Before any preparation for a holiday can be made we need to decide where to go. There are so many factors that come into play when deciding where to go.
- How far do we want to go?
- Do we want to go abroad or stay in our own country?
- How much can we afford to spend?
- How much time do we have available?
- What time of year can we go on holiday?
- Does everyone have similar preferences for the type of holiday?
- Where have we been to before?
A simple way of deciding where to travel can be done by looking at the destination in terms of costs and benefits. Travelling abroad for a long time will cost more than travelling to the next state for a few days. This cost comes in the form of money and time. Budget and time are also constraints that may eliminate certain options.
Operating within constraints
Considering constraints might be the best place to start. Any holiday option goes beyond those constraints should be eliminated. For example, a 5 week holiday that will cost about $50,000 should not be considered if you have only 3 weeks available and a budget of $20,000. Once we have decided what can reasonably fit within our constraints we can start looking at some of the other questions.
Risk
Going somewhere different offers the opportunity to enjoy new experiences and adventures. Going somewhere different also presents the risk that you will not enjoy yourself. Going somewhere familiar reduces that risk because you know what to expect but there will be less thrills from new adventures. So is it worth risking somewhere new? Research can be done to reduce the risk. There are plenty of websites and blogs where reviews of different locations can be found. This should give you a little more comfort regarding the type of experience you get from a potential destination. These reviews are still just people’s opinions and different people have different opinions and taste.
Maximising enjoyment at a reasonable cost
Ultimately we want a great holiday that is not going cost a fortune. We also want a holiday where we have sufficient time to fully enjoy ourselves.
How shall we get there?
There are many ways to reach a destination. Some places can be reached by more ways than others. The options are normally by car, bus, train, boat, ship, plane or combination of these. Factors affecting these decisions are accessibility, time, cost, and quality of travel. When I visited Europe, I flew by plane and then travelled by cruise ship visiting several ports as part of the cruise.
Cruise Ship comfort
Flying to Europe was the fastest way to get there and a logical choice given my time constraint. Travelling by cruise ship meant that travelling became part of the holiday itself. I avoided the stress of going from airport to airport. The cruise ship travelled at night so I did not waste any of the day travelling. The cruise ship provided accommodation, food and entertainment for a reasonable price compared to being on land. Travelling by cruise ship limited the places I could visit to coastal towns or towns within a very short distance of the coast.
Bus, train or plane
I could have travelled around Europe by bus, train or plane. Each of these also offer advantages and disadvantages.
Bus might be the most affordable mode of transport but it takes up a lot of time and does not offer much in terms of comfort. Bus provides flexibility in terms of places to visit but you are restricted by the timetable of the bus. Missing the bus could potentially ruin your holiday.
Travelling by train is a little more comfortable but offers a little less flexibility as not everywhere has train stations. Train is normally faster than bus but still requires time to travel in the day.
Flying is both fast, affordable and provides some flexibility of different locations. There are locations that do not have airports and still require additional travel using taxis, buses or trains. Flying can also be quite stressful in regards to navigating airports with suitcases and moving through security.
There are many ways of travelling to a location. The choice of travel mode can also influence the holiday location you select. If a place is not accessible by your chosen mode of transport you will visit that place.
Book or not to book in advance?
Some people love to have everything booked in advance. Other people prefer to book as they go along.
Risk
Booking in advance provides you with assurance that you will have a place to sleep and you will have a place on a bus or train. Not booking in advance provides you with the flexibility to make last minute changes to your plan. You might encounter somewhere interesting that you would miss out on if you need to be at a particular place at a particular time.
How risk averse are you? How adventurous are you? How do the other people you are travelling with feel about risk? The people you travel with will affect your attitude towards risk. If you are travelling alone, you might be more inclined to take a risk and not book anything. After all, you only need to find accommodation for one person. There is less luggage to carry around. You will not be disappointing someone else. If you are travelling with others. The risk and the cost of something going wrong is higher. It is harder to find accommodation for more people. If you are travelling with young children they will get impatient and grumpy. There is more luggage to carry around.
Taking care of matters at home
Before going on holiday there are things to take of before you leave. These might include the following.
- Looking after pets that are left behind.
- Arrangements for receiving mail.
- Security of your home.
- Informing people of your whereabouts.
There are several ways of going about the above tasks. You can leave pets with friends or relatives or pay for them to go in a kennel. You can ask the post office to keep your mail until you get back or just let the mail accumulate. You can inform the neighbourhood watch that you are going away or just take a chance that you won’t get burgled. You can inform plenty of people of your whereabouts in case you need to be contacted in the event of an emergency or you can slip away without telling anyone. All of these decisions depend on preferences regarding risk and cost.
Economic Concepts applied
The economic concepts that are observed and in some cases applied are as follows:
- Risk
- Cost benefit analysis
- Constrained Utility Maximisation
Risk appears to be the most applied concept for going on holiday. There is risk of selecting a poor destination. Risk of not being able to find accommodation or transport modes when needed. Risk of falling ill or getting robbed. Risk of things happening at home while you are away. All these risks can be mitigated. Holidays can be made at familiar locations. Everything can be booked in advance. Travel insurance can be bought to reduce costs of medical care. Relatives can stay at your house while you are away.
Cost benefit analysis can be applied to determine the best holiday by factoring what gives you and your travelling companions the most enjoyment while considering the costs. There is so much information available online that a person could obtain a very good idea of the type of experience they are likely to have at a particular place. Most holiday related costs can be determined beforehand as most prices are available on the internet. A simple cost benefit analysis is quite possible. This approach makes sense but do many people adopt this approach?
Constrained utility maximisation links closely with cost benefit analysis. This approach can be simply used to eliminate destinations that exceed the budget or require more time than is available. Constrained utility maximisation can also be applied to deciding the most appropriate form of transport as well. Does time and budget allow for you to take a cruise or should you fly with budget airlines and stay at hostiles?
This brings me to the end of Part 1 of ‘Economics is Everywhere – Going on Hoilday’. This post focused on how economics can be applied to a holiday prior to departure. Part 2 will look at how economics can be applied on the actual holiday itself. I hope you enjoyed this post.
