Recently, the number of natural disasters in United States has been on the increase, which has subsequently affected the tourism industry. Natural disasters, such as hurricanes, floods, and earthquakes, are beyond human control. Therefore, they are considered among external factors that affect the tourism business. Moreover, the tourism industry is highly susceptible to natural disasters. Many tourists often avoid areas that are prone to natural disasters, and for this reason, such activities as traveling and visiting destination sites are affected significantly by floods or hurricanes (Maditinos & Vassiliadis, 2008). Moreover, natural disasters have a direct effect on economic variables. Thus, Granvorka and Strobl (2009) note that natural hazards have direct effect on “tourist-dependent economic patterns” (p. 2). When defining the tourism industry based on a set of such factors as hospitality activities, natural sites, sport activities, and other activities, directly related with tourism, Granvorka and Strobl (2009) have noted that natural disasters are likely to scare tourists away and influence the hospitality business since many business people will avoid areas that have high risk. Similarly, microeconomic theory of supply and demand can help analyze the impact of natural disasters on tourism in different areas. Even though natural disasters have a direct influence on economic variables, this area has not been sufficiently explored. In this regard, this paper applies the theory of supply and demand to determine the impact of natural disaster on tourism. Theoretical Framework This paper establishes the microeconomic theory that explains the phenomena in terms of economic principles and rules. Microeconomic theory, as defined by Tian (2013), aims at modeling economic activities as the interaction of specific economic variables that pursue individual interests. Moreover, in analyzing the economic impact of a particular event or problem, the establishment of an analytical framework is imperative. Thus, the following are the major aspects of analyzing a framework for an economic theory. First, the need to describe accurately and succinctly the economic environments, including their characteristics, is essential in establishing a theoretical framework. Tian (2013) describes an economic environment as consisting of a number of individual information structures, which are characteristics of individuals, for example, consumer and producer behaviors, and institutional economic environment such as the laws and rules that govern economic activities. Second, economists must make assumptions on individual behavior. Third, depending of the issue in question, adopting an economic mechanism is helpful in determining the economic impact of a particular issue (Tian, 2013). After establishing the model for analyzing the theoretical framework for an economic issue, the theory of supply and demand is applied in determining the impact of natural disaster on tourism. First, a brief discussion of supply and demand theory is required. Supply and Demand theory and Tourism Market The theory of supply and demand is essential in understanding a particular phenomenon and how it affects particular economic issue - in this case, natural disaster. Thus, Tian (2013) claims that the role of economic theory is to explain economic behavior and developments in a real world. Therefore, before trying to explain a particular economic phenomenon, it is important to establish a theoretical framework. Market is characterized by two main activities: buying and selling (Arnold, 2015). Thus, the law of supply and demand helps in understanding how different factors, such as natural disasters, affect the tourism market, both directly and indirectly. First, in the law of demand, whenever there is an increase in what people have to pay for goods, the amount or quantity of such goods in demand will greatly reduce, and the opposite is true (Arnold, 2015). Therefore, the price charge for goods and the amount or quantity of such good, which are demanded, have an inverse relationship. On the other hand, the law of supply states that the quantity of goods supplied rises when the price of these goods rises (Arnold, 2015). In other words, the amount of goods supplied to the market has a direct relationship with their prices. Any variation in the cost people have to pay for goods will result into a corresponding variation in the amount of those goods demanded by the population. Consequently, any factor that affects the quantity of goods, be it internal factor such as taste and customer satisfaction, or external factors, such as natural disasters, will correspondingly affects the price of goods. The tourism industry is affected by numerous supply and demand factors. Specifically, Hiemstra and Wong (2002) have identified seven factors that impact tourism activities. Among these factors are the model, which is developed by a country to attract tourists, relative consumer prices, and seasonality. Other factors presuppose exchange rates and political as well as climate factors, for example, weather season. Similarly, there is a possibility of categorizing factors that impact the tourism market. The first group is determinant factors. These are external factors that shape the demand for tourism within a particular region. Second, motivation factors can be either external or internal, and they influence an individual desire in tourism-related matters. Thirdly, determinant factors can include the government policy, the images of tourist sites, media publication, socioeconomic, and environmental factors. Finally, motivation factors include individual income, taste, and preferences. At the same time, price has a direct influence on demand and supply in tourism. Affordable prices attract more tourists, while high prices will reduce demand. Therefore, since the costs of repairing any damage incurred by the sites’ operators due to natural disasters are passed onto the tourists, the prices for tourism services and products are not exclusive (Granvorka & Strobl, 2009). Instead, price depends on other factors such as supply, customer satisfaction, and market forces. In this regard, understanding factors, affecting supply and demand in tourism, is important in analyzing how natural disasters impact tourism. Impact of Hurricane Matthew, Florida on Tourism Natural disasters, such as floods, earthquakes, and hurricanes, directly affect local tourism markets. A case in point was the recent natural disaster that had hit Florida in 2016. Many parts of Florida were devastated by hurricane Mathew that had left many people homeless and destroyed a great number of businesses, including numerous tourist attraction sites. The impact of hurricane Matthew includes damage to the infrastructure, for example, roads, power lines, and buildings. These damages led to the suspension of air and road travel. In addition to the loss of electricity, many buildings, including hotels, were destroyed. Thus, the tourism industry in Florida was negatively affected since because of hurricane Mathew, many tourists simply avoided the region. For this reason, the demand for tourism services dropped to almost zero. The demand for particular goods is affected by individual preferences and choices (Arnold, 2015). Since hotels often are forced to pay more for electricity, water, and fuel, the price of rentals and accommodation increase (Granvorka & Strobl, 2009). Therefore, based on the law of demand, tourists will avoid the regions that have suffered from natural disasters because of high prices for tourism products. In his analysis of market prices and price controls before and after a natural disaster, Perry (2017) reveals that market prices will rise after a natural disaster has occurred. This can be seen in the table below. Source: Perry (2017). This graph shows how the demand for such goods as water, electricity, and fuel rises, resulting into high market price. According to Perry (2017), after a natural disaster, the market prices of goods and services, offered in the affected region, naturally rise from P1 to P2. The implication is that the tourism industry in these regions experiences the shortage of supply of tourists and other services that indirectly affect the prices of tourism products such as a limited access to water. For this reason, the availability of various tourism services will dwindle as illustrated in the graph below. The graph gives an indication of the demand curve for tourists after a disaster. Price D2 D1 Quantity demanded The graph shows that the demand for tourists decreased from D1 to D2 due to the following factors - the market price for hotels increased, aggregate demand reduced to almost zero, and the change in government policy was made. Thus, the government policy that had temporarily banned visitors coming to Florida affected the tourism industry in the region since there was no demand. Since the law of supply and demand states that when demand falls to zero, supply also falls to zero, the aggregate demand also falls to zero, which results in the supply falling to zero as well. The graph below illustrates zero demand and zero supply due to the government policy. Supply Demand Conclusion In conclusion, natural disasters, such as the recent hurricane Matthew that had hit parts of Florida, impacted the tourism industry negatively. With the application of the theory, explaining the relationship between supply and demand, the economic phenomena, occurring as the result of natural disasters, can be explained. Most specifically, after such disasters, market prices rise and, therefore, the demand of tourism products falls. Numerous factors impact the amount of tourism-related goods or services, supplied to the market and demanded, when an area is hit by a natural disaster. These include government policies, media coverage, and the redirection of demand and low labor supply. Furthermore, other external factors include increased travel cost and the scarcity of resources such as water and fuel. Finally, the paper predicts the future rise in tourism market prices due to the effects of climate change. Read more articles on https://premium-quality-essays.com/