Economics of Leisure and Non-Leisure Tourist Demand: A Study of Domestic Demand for Australian Tourism

Abstract

This article analyses the economic determinants of demand for tourism goods and services by Australian households distinguished by the travel motives of leisure and non-leisure. Using tourist consumption data collected through quarterly national visitor surveys, two systems of demand equations are estimated, based on the almost ideal demand system and incorporating seasonality. The study aggregates itemized tourist expenditure data into five broad commodity groups: accommodation, food, transportation, shopping and entertainment. The estimated models obey the basic postulates of consumer theory – homogeneity and symmetry. Overall, demand for the five commodity aggregates is found to be price inelastic, while the degree of price sensitivity varies across the commodity aggregates and between the two types of tourists. In general, demand by leisure tourists is found to be more sensitive to price than demand by non-leisure tourists. The cross-price elasticities derived from both models reveal a gross complementarity of demand, implying that tourists' overall utility depends on the joint consumption of a bundle of goods and services. The observed price-inelastic demand, coupled with the apparent complementarity of demand, may reflect the possibility that latent price sensitivity is associated with tourist demand.