The Revenue Department in the State of Chatom State has recommended the imposition of a $5 hotel occupancy tax per night per room to raise revenue for the local government. The results of a survey on hotel establishments indicated that there are 1,000,000 hotel rooms in the State of Chatom State with an average occupancy rate of 70%. The average hotel room price per night is $100. A local economist has estimated the price elasticity of demand to be -0.25 while the price elasticity of supply is 0.45. Based on this information, you are required to do the following in preparation for a meeting with the governor: a) Using a well-labeled diagram, show clearly the following concepts with and without the hotel tax: Total Benefits to the Society Total Costs to the Society Consumer Surplus Producer Surplus Tax Revenue Dead Weight Loss b) Based on the information provided, calculate the total tax revenue and excess burden that would be generated from this hotel tax. c) Officials of the Chatom State Tourism Department are very worried about the impact of the hotel tax on tourism. They are worried that the additional $5 unit tax per room will be too much for the tourists to bear. They have therefore suggested that the hotel tax be applied directly on the hotel owners rather than the tourists. In this way the hotel tax will be borne by the hotel owners rather than the tourists. Do you agree? Briefly explain how the imposition of the tax on hotel owners will be different from the imposition of the tax on the consumers. d) Based on a new survey on hotel establishments, the number of hotel rooms in the state remains unchanged but the estimated price elasticity of demand for hotels increases to -1.4 in absolute terms. Your staff has argued that this will lead to: more deadweight loss more tax revenue a higher room price to the tourists and, a decrease in the number of hotel rooms sold. Do you agree? (Show either with appropriate diagrams or calculations to illustrate your answer) e) What is the percentage of deadweight loss to total tax revenues under each assumption? Show your calculations. f) The Governor of Chatom State argued that the unit tax needs to be shifted to an ad valorem tax. Thus, rather than imposing a $5 unit tax per hotel room per night, he argued that a 5% ad valorem tax should be levied on hotel rooms. Using a price elasticity of demand of -0.25 and a price elasticity of supply of 0.45, what is the implication of this shift on revenues, excess burden and tax incidence? Would shifting to an ad valorem tax rate structure increase the tax revenues this year?