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2) Hotel rooms in Denver, CO go for $200ight and 1,000 rooms are rented on an average day. The town decides to put a $10ight
2) Hotel rooms in Denver, CO go for $200ight and 1,000 rooms are rented on an average day. The town decides to put a $10ight lodging tax on their hotels. [It may help but is not required that you to sketch a linear supply and demand graph for this question.] a) The $10ight tax causes the price paid by consumers to rise to $207 and the quantity of rooms rented per night drops to 950. How much tax revenue is raised by the tax? How much deadweight loss does it cause? [ you can assume deadweight loss is a triangle. Area = 1/2(Base)(Height) ] b) When the city doubles the tax to $20, the price paid by customers rises to $214 and the average quantity drops to 900 per night. Calculate the tax revenue and deadweight loss with a $20ight tax. c) Did the tax revenue double? Why or why not? How did deadweight loss change compared to the DWL caused by the $10 tax? d) What do you predict will happen to tax revenue and deadweight loss if they double the tax again (raise it from $20 to $40ight)? [no need to calculate here, just predict]
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