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Use the following information to answer the next THREE questions: A very scenic and mountainous town in northern Ontario is considered to be a popular
Use the following information to answer the next THREE questions: A very scenic and mountainous town in northern Ontario is considered to be a popular tourist destination for skiing during the winter season. There are many ski resorts in the area, and the rooms are all booked by out-oftown residents. Seasonal demand for rooms by out-of-town residents is perfectly inelastic (vertical) at Q=40 rooms, where Q is the capacity number of rooms. Resort owners are all residents of the town. Their marginal private cost of maintaining the rooms is $20 per room. The local govermnent is considering charging resort owners a hotel room occupancy tax of $5 per room and using the revenues to help nance local public services that are available to local residents only. Using a graph with dollars on the vertical axis and Q on the horizontal axis, answer the following questions. How much revenue will the tax generate for the government? $ What will the deadweight loss from the tax be in market equilibrium? $ Local residents of this scenic and mountainous town receive marginal benets from public services according to MB=100lOZ, where Z is number of units of public services. The town's marginal cost of providing public services is $20 per unit. The cost is typically financed by property taxes, but by using hotel room occupancy taxes instead of property taxes, the town will be able to fully export its taxes to outoftown residents, effectively reducing it's marginal private cost of providing public services to zero. What will the deadweight loss be in the market equilibrium with tax exporting? $
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