Government Shutdown - Economic Impact on Southern Utah

Economic concepts tend to make more sense to me when demonstrated through real life examples.  As a resident of Southern Utah I have been intrigued by the economic impact of the government shutdown on the local and state economy.  Holding true to the concept of locality I would like to reference and base some of my thoughts from a Ksl.com article entitled, "Visitors Return to Zion National Park, Neighboring Businesses."  In summary, this article discusses the welcome opening of the park and that event's impact on the local economy.

With a basic understanding of supply and demand, it is obvious to see the economic impact that has taken place due to the shutdown.  As the park shutdown there was no available supply of park activities for tourists.  While the park remained closed the demand was still present.  The demand for access to park activities contributed to the State of Utah paying to open the parks.  As park access was eliminated the volume of tourists visiting the surrounding communities decreased significantly.  Fewer tourists caused a decrease in demand for local amenities such as food, lodging and other related activities.  As the demand for these services decreased the revenue for local companies plummeted.  

The State of Utah took notice of the eliminated supply of national park and monument amenities and associated loss of revenue.  The state did two important things.  To address the demand for tourist activities state parks and monuments were advertised as substitutes.  Providing substitutes supplied some activities to meet the demand.  These substitutes kept a portion of potentially foregone revenue within the state. Eventually, the State of Utah took note of decreasing revenue for the tourist industry and funded the opening of national parks and monuments and restored the associated supply.  

The State of Utah has only funded theses national parks and monuments for 10 days at a cost of $167,000 per day.  If the parks close again similar changes in demand and supply will likely occur.  I believe there to be a positive correlation between the length of the government shutdown and level or uncertainty and risk.  I believe that if the 10 days of funding expire and the government is still shut down, the uncertainty and risk will cause an overall decrease in demand and tourists visiting the area.  

It has been interesting for me to observe the workings of the economy on such a local and personal scale through the closing of national parks and monuments. I hope the best for our local economy.  


Dave Tufte said...

JRich: 100/100

JRich: Fix that link or I'll dock you some points.

What you're describing is that the amenities that depend on the park are complements. With complements, some or all of their demand may be derived: that is, based on the quantity demanded for something else.

To flesh this out, when supply of Zion shifted left, quantity demanded of Zion went down, and in this in turn caused the demand for each amenity surrounding the park to shift left. When you put it in those terms, it's then clear that the quantity demanded of those amenities could be increased by shifting their supply to the right. It's not clear that a manager would want to do that, but it shows the possibility that the government shutdown could cause local suppliers to actually hustle more.

Aicha435 said...

Park closures had a significant impact on local businesses in cities such as Springdale because they rely so heavily on tourism for their revenue. Once the parks reopened the communities began to flourish again. That being said, JRich, I'm not sure I follow your logic when you state "While the park remained closed the demand was still present... As park access was eliminated the volume of tourists visiting the surrounding communities decreased significantly." It seems to be a contradiction in terms, or maybe I'm just not understanding what you're trying to say. If the demand was still present, wouldn't the surrounding communities have seen an increase rather than a decrease (as a result of substitution)?

Dave Tufte said...

Aicha435: 50/50

I think JRich's terminology is OK. Demand didn't change. The price for a park visit that potential buyers faced went up (inconvenience or lack of access are part of the price). So I think this was a movement along demand.