Hotel rooms in Smalltown go for $100, and 1,000 rooms are rented on atypical day. a. To raise revenue, the mayor decides to charge

2 answers
Question:

Hotel rooms in Smalltown go for $100, and 1,000 rooms are rented on atypical day. a. To raise revenue, the mayor decides to charge hotels a tax of $10 perrented room. After the tax is imposed, the going rate for hotel roomsrises to $108, and the number of rooms rented falls to 900. Calculate theamount of revenue this tax raises for Smalltown and the deadweightloss of the tax. (Hint: The area of a triangle is l/2Xbase X height.)h. The mayor now doubles the tax to $20. The price rises to $116, andthe number of rooms rented falls to 800. Calculate tax revenue anddeadweight loss with this larger tax. Are they double, more thandouble, or less than double? Explain.

Answers

doubling the size of the tax more than doubles the deadweight loss while less than doubles the revenue generated

Explanation:

(a)

The quantity of rooms rented before tax, Q1 = 1000 rooms.

The quantity of rooms rented after the imposition of tax Q2 = 900 rooms.

Size of the tax = $10

Price paid by buyer = $108

Price received by seller = $98  

 Deadweight loss = 1/2 x (Q2 — Q1) x (size of the tax)  

 Deadweight loss = 1/2 x (1000 — 900) x ($10) = $500  

Tax revenue generated = size of tax * (Q2) = $10 x (900) = $9000

b)

The quantity of rooms rented before tax, Q1 = 1000 rooms

The quantity of rooms rented after the imposition of tax, Q2 = 800 rooms Size of the tax = $20

Price paid by buyer = $116

Price received by seller = $96  

  Deadweight loss = 1/2 x (Q2 — Q1) x (size of the tax)  

  New Deadweight loss = 1/2 x (1000 — 800) x ($20) = $2000  

Thus, dead weight loss quadruples post doubling the size of tax. New Tax revenue generated = size of tax x (Q2) = $20 x (800) = $16000 Thus, revenue generated less than doubles post doubling the size of tax.  

a) Revenue generated = $9000

Deadweight loss = $500

b) Revenue generated = $16,000

Deadweight loss = $2000

Tax revenue doubles while the deadweight becomes more than double with the larger tax

Explanation:

Typical rent for a hotel room = $100

Typical rooms rented, R = 1,000

a) Tax charged = $10 per rented room

Going rate for hotel rooms = $108

number of rooms rented, R₁ = 900

Now,

Revenue generated = Size of tax × R₁

= $10 × 900

= $9000

Deadweight loss = [tex]\frac{1}{2}[/tex] × (R - R₁) × Size of tax

=  [tex]\frac{1}{2}[/tex] × (1000 - 900) × $10

= $500

b) Tax charged = $20 per rented room

Going rate for hotel rooms = $116

number of rooms rented, R₂ = 800

Now,

Revenue generated = Size of tax × R₂

= $20 × 800

= $16,000

Deadweight loss = [tex]\frac{1}{2}[/tex] × (R - R₂) × Size of tax

=  [tex]\frac{1}{2}[/tex] × (1000 - 800) × $20

= $2000

Tax revenue doubles while the deadweight becomes more than double

Similar Solved Works

4 answers

That’s here

That’s here...
3 answers

Which relationship from “Little Women” is the most important in the novel: Jo and Amy, Jo and Laurie, or Jo Bhaer? Explain.

Which relationship from “Little Women” is the most important in the novel: Jo and Amy, Jo and Laurie, or Jo Bhaer? Explain....
3 answers

Is 11 and 12 correct? and what is the correct answer? correct answer pls lots of points

Is 11 and 12 correct? and what is the correct answer? correct answer pls lots of points [tex]Is 11 and 12 correct? and what is the correct answer? correct answer pls lots of points[/tex]...
9 answers

Which of these states has the coolest summer and coldest winter

Which of these states has the coolest summer and coldest winter...
4 answers

In the first few pages of this chapter, we learn about Gatsby’s background. When did James Gatz change his name to Jay Gatsby? Why did

In the first few pages of this chapter, we learn about Gatsby’s background. When did James Gatz change his name to Jay Gatsby? Why did he leave college after just two weeks? The Great Gatsby...
8 answers

The amount of force acting on an object is equal to its mass times it's accelerationDoes the statement describes a scientific

The amount of force acting on an object is equal to its mass times it's acceleration Does the statement describes a scientific law?A No, because it is applicable to all cases in the natural worldB Yes, because it is applicable to just a few cases in the natural worldC No, because it describes the r...
5 answers

Please someone help me complete this.. I need it done before 9am!!!

Please someone help me complete this.. I need it done before 9am!!! [tex]Please someone help me complete this.. I need it done before 9am!!![/tex]...
2 answers

The Italian government decides to stimulate the economy by sending checks worth $70 billion to Italian

The Italian government decides to stimulate the economy by sending checks worth $70 billion to Italian consumers If the government spending multiplier is 1.5, calculate the MPC to determine the final change in Italy is real GDP due to the transfer. Please give your answer as a whole number in billio...
12 answers

Which best describes the structure of a dna model

Which best describes the structure of a dna model...
4 answers

Which of the following is an example of common law being applied in a judge's decision? Select all that apply.Harriet Barker was found

Which of the following is an example of common law being applied in a judge's decision? Select all that apply. Harriet Barker was found innocent of shoplifting after her attorney produced three earlier cases in which defendants charged with shoplifting were acquitted because they thought the scanne...
3 answers

Graph the function f(x)= -(x-2)^2 +4. In what form is this quadratic function written? . List the values of the following parameters:a

Graph the function f(x)= -(x-2)^2 +4. In what form is this quadratic function written? . List the values of the following parameters:a = h = k = Vertex =...
4 answers

What do you call a baby zebra?

What do you call a baby zebra?...
10 answers

Victoria enjoys laughing with her friends as they walk around the track after school. which best describes

Victoria enjoys laughing with her friends as they walk around the track after school. which best describes their heart rates during this activity? low moderate vigorous dangerous...
7 answers

What are the four types of sentences? what end punctuation does each type of sentence take?

What are the four types of sentences? what end punctuation does each type of sentence take?...
10 answers

Amita wants to make a mold for a candle. she wants the shape of the candle to be a rectangular prism

Amita wants to make a mold for a candle. she wants the shape of the candle to be a rectangular prism with a volume of exactly 28 cubic centimeters. she wants the sides to be in whole centimeters. how many different molds can she make?...
4 answers

Why did Parliament continue to clash with Charles I, even after he had signed the Petition of Right?

Why did Parliament continue to clash with Charles I, even after he had signed the Petition of Right?...
3 answers

All I need to know is what X is for this problem

All I need to know is what X is for this problem [tex]All I need to know is what X is for this problem[/tex]...
3 answers

5 Facts about cell division

5 Facts about cell division...
4 answers

Which one of the following is NOT an ethical norm as conceived by the American Marketing Association? embrace ethical values like honesty,

Which one of the following is NOT an ethical norm as conceived by the American Marketing Association? embrace ethical values like honesty, responsibility, and fairness foster trust in the marketing system with fair dealing consciously avoid harmful actions or omissions attempt to learn what consumer...
3 answers

37 Ifx - 7 = 1, then x + 19

37 Ifx - 7 = 1, then x + 19...

-- 0.018451--