9. Problems and Applications Q9

Hotel rooms in go for $80, and 900 rooms are rented on a typical day.

To raise revenue, the mayor decides to charge hotels a tax of $15 per rented room. After the tax is imposed, the going rate for hotel rooms rises to $85, and the number of rooms rented falls to 800.

Use the following graph to help you answer the questions that follow. You will not be graded on any changes you make to this graph.

140 120 Scratch Demand 100 Scratch Supply Ir 80 O 60 Scratch Points 40 20 200 400 600 800 1000 1200 1400 Quantity of Hotel Rooms This tax raises S in government revenue, and causes a deadweight loss of S in this market. The mayor now doubles the tax to $30. The price rises to $90, and the number of rooms rented falls to 700 This higher tax raises S in government revenue, and causes a deadweight loss of S in this market. When the tax is doubled, the tax revenue rises by double, and the deadweight loss rises by double