The tourism industry is facing a dilemma whether to increase capacity or improve quality in order to meet growing tourism expenditures. The ability to decompose expenditures into their quality and quantity components can provide insight for the industry's decision-makers. A theoretical model of household demand for tourism was developed while distinguishing between quality and quantity of the households’ vacations. Income and price elasticities for both level of quality and number of vacation days are derived. By applying the model to Israeli data, it was found that about half of the increase in tourism expenditure is due to increases in the level of vacation quality and the other half to changes in the number of vacation days.