Research Project: Turkey's Tourism Troubles (posted by Jane)

Introduction

Turkey's economy is reliant on tourism. With tourism accounting for 12% of the country's GDP and 10% of all national employment, it would be terrible for there to be a drop in tourism (Marmaris). However, that is exactly what happened in the first seven months of 2025. There has been a 30% drop in tourists in comparison to 2024 (Marmaris). With prices going up in Turkey due to inflation, more and more tourists choose to visit other countries like Greece or Spain (Cetinguc). I wanted to know how this would affect prices in Turkey's iconic bazaars. In theory when demand goes down, with fewer tourists, prices should go down. In Naked Economics, Charles Weelan says, “When the cost of something falls it makes it more attractive”. So the price and quantity should look something like this:

However, when I was interviewing store owners they said their prices went up. So I set out to understand why.

Price Elasticity & Price Descrimination

The first theory as to why prices didn’t go down is the inelasticity of demand. This means that tourists are more willing to buy goods no matter the price. Tourists from other countries often don’t know how a product is normally priced. In Safranbolu, I interviewed a sweets seller in the tourist area and she explained that the shop increased the price because they need to make up for the sweets they aren’t selling. Tourists are more willing to buy products even if the price goes up. This means that demand is inelastic. If you were to graph it you would see that the demand line is more vertical.

Now when the demand shifts left (less tourists) producers can keep prices up while still not having too much excess supply. However, this graph is very complicated and there are other reasons prices have gone up that I will explain in the next sections. 

Shop owners take a gamble at overcharging tourists and it normally pays off. Even Turkish tourists are willing to pay a little more on vacation. In Naked Economics Charles Weelan explains that even airline companies will find ways to increase prices for business travelers who are willing to spend more but still keep prices lower for leisure travel. For example, a flexible or last minute ticket is more expensive. This is also a ticket that business travelers would need. This is a way for airlines to maximize their profit. This is also what shop owners do. In official  language changing prices is called price discrimination. We saw examples of this while in Safranbolu, the tourist sweet shop is more expensive than a shop on the other side of town catering to locals .Charging more to tourists means you have a much higher profit margin without having to do any extra work. Of course, this can be very irritating for tourists. Another way you can see price discrimination is in price fixing. Stores will collectively decide what to charge for certain items. We learned about this in Konya with a shop owner who explained there is a min and max amount for items. Price fixing we learned also happens between the different scuba shops in Kaș. So one reason prices haven’t gone down is tourists don’t know what the correct price is so are willing to pay a lot more.

Input Costs

I learned about price elasticity but like everything in economics there are lots of reasons for prices to stay up even if there is less demand. I interviewed another sweets seller who said he decided prices based on the input costs which was mostly sugar. When I did some digging, I found that sugar was tariffed heavily. That is not something you want to do if there is already inflation. India, their second-largest source of sugar, faced a 100 percent tariff in 2023. Morocco, Turkey's main source of sugar was tariffed 42.1 percent. This hikes up the price of sugar so the price of Turkish delights goes up, too. Trade is one of the best ways to improve an economy. Charles Weelan in Naked Economics explains trade lowers the price of goods and makes more efficient use of the world's resources. Another reason import prices have gone up is that the value of the lira in terms of other countries' currencies have gone down making products feel more expensive for Turkey. So even if there is less demand store owners can’t lower the prices since input costs are so high.

In the theory of supply and demand, this would be represented by double shift. First, demand shifts left because of the drop in tourism. Then, supply shifts left because of increasing input costs of sugar. Therefore, the price of the sweets is indeterminant.

Inflation

At the start of this project, when doing general research on Turkey’s economy, the main thing that showed up was their terrible inflation. Like many authoritarian regimes, Erdogan, the current president, declared a state of emergency and took control of the central bank in 2018. (Reuters). Erdogan then gave the whole world an example on why the central bank is separate from the main government. He decided to increase the money supply from 2021 to 2025 in an economy that already had some inflation. This made inflation even worse. Inflation peaked at 85% in 2022 (Lachman). Then, when Erdogan tried to fix this mess. Interest rates went way up as the central bank took money out of the economy. In March 2024, interest rates went from 8.5% to 50%, marking an all time high in Turkey's modern history (GIS). This has led to lots of mistrust in the government, you can see this when you talk to any Turkish person. How does this connect to tourism? Firstly tourists no longer see Turkey as a budget getaway. I also wanted to know if real prices, the price minus inflation, actually went up or if the original graph was correct. 

To test this hypothesis, I interviewed our Airbnb host and also an employee at a scuba shop in Kaș. First, we interviewed our Airbnb host who explained that he used to have a tourist trinket shop but then because there were less tourists he had to shift to hardware, something locals needed. This was interesting but not what I was focusing on. The price of the Airbnb was more trackable. In 2018 he was charging 2,000lira a day. Now he charges 7,000 lira a day. It seems like he is charging a lot more now but if the 2018 price had kept up with inflation, he would be charging 21,000 lira. People's expectations also have not adjusted to the new prices. This creates a dilemma for store owners: they need to raise prices but they can't without losing customers. The real price did go down when adjusted for inflation; this supports the original graph with the claim that less demand leads to lower prices.

We heard a similar story at a scuba shop. There are 21 dive shops in the small town of Kaș. They will get together and set a minimum price but some shops will go under this price to attract more customers. This forces all of the other dive shop prices to go down. This ends up cutting into the guide's income which is now only at $1,000 a month, so dive instructors also have to have other jobs. When we asked about the prices she said in 2018 they were charging 500lira for a “try dive” now they are charging 1,7000 lira. It seems like the price has gone up a lot but no. If the original price kept up with inflation they would be charging 5,000 lira. Therefore, there was actually actually a 66% drop in real prices.

Airbnb

2018 : 2,000 lira

2026 : 7,000 lira

Real price: 21,000 lira

Scuba Shop

2018 : 500 lira

2026 : 1,700 lira 

Real price : 5,000 lira

Due to the incredibly high inflation real prices have actually dropped even though on paper it looks like it has gone up.

Conclusion

Inflation and high interest rates has made Turkey unlivable for so many people. Almost everybody we have talked to is trying to move out permanently or at least for a while.These numbers seem crazy on paper but the effects on people's real lives are even crazier. It may take a month to mess up an economy but it can take decades to repair an economy and regain the public’s trust.

Works Cited

"Why Do Erdogan’s Monetary Policies Stimulate the Deterioration of the Lira?” Futureuae, 2026, www.futureuae.com/create.sql.tar/Mainpage/Item/6771/chronic-inflation-why-do-erdogans-monetary-policies-stimulate-the-deterioration-of-the-lira. Accessed 10 Feb. 2026.

French, Douglas E. “The Beauty of Trade at the Grand Bazaar.” Mises Institute, 14 June 2011, mises.org/mises-daily/beauty-trade-grand-bazaar?utm_source=chatgpt.com. Accessed 10 Feb. 2026.

Lachman, Desmond . “Turkish Inflation Lessons for the Federal Reserve.” American Enterprise Institute - AEI, 25 May 2022, www.aei.org/op-eds/turkish-inflation-lessons-for-the-federal-reserve/. Accessed 10 Feb. 2026.

OEC. “The Observatory of Economic Complexity.” The Observatory of Economic Complexity, 2026, oec.world/en/profile/bilateral-product/raw-sugar/reporter/tur. Accessed 10 Feb. 2026.

Patterson, Rebecca. “If You like 35 Percent Inflation, Go Ahead, Fire the Fed Chair.” New York Times, 15 June 2025, www.nytimes.com/2025/07/15/opinion/fed-trump-fire-powell.html?smid=nytcore-ios-share. Accessed 10 Feb. 2026.

Reuters . “Turkey Removes Clause on Five-Year Term for Central Bank Governor.” Reuters, 9 July 2018, www.reuters.com/article/markets/turkey-removes-clause-on-five-year-term-for-central-bank-governor-idUSL8N1U54GI/. Accessed 10 Feb. 2026.

Sak, Guven. “Turkey’s Economic Shift and What It Means – GIS Reports.” GIS Reports, 13 Aug. 2024, www.gisreportsonline.com/r/turkey-erdogan-economics/. Accessed 10 Feb. 2026.

Team, BT. “Turkiye Boosts Tax Audits in Bazaars and Marketplaces to Tackle Evasion.” Bazaar Times, 25 Dec. 2024, bazaartimes.com/turkiye-boosts-tax-audits-in-bazaars-and-marketplaces-to-tackle-evasion/. Accessed 10 Feb. 2026.

The Economist. “Fires, Earthquakes and Inflation Are Putting Tourists off Turkey.” The Economist, 4 Sept. 2025, www.economist.com/europe/2025/09/04/fires-earthquakes-and-inflation-are-putting-tourists-off-turkey. Accessed 10 Feb. 2026.

“Turkey Imports by Category.” Tradingeconomics.com, tradingeconomics.com/turkey/imports-by-category. Accessed 10 Feb. 2026.

Turkey, PA. “Turkey’s Tourism Faces Sharp Decline - P.A. Turkey.” P.A. Turkey, 29 Aug. 2025, www.paturkey.com/news/2025/turkeys-tourism-faces-sharp-decline-23119/.