Economics and Hotel Tax

timer Asked: Apr 9th, 2017

Question description

During the last weekend, I went to a hotel that has 120 rooms. The price of the rooms per day was $ 150. In that location a new tax per room has been established of $15 per room, per day. With that tax the hotel, established a price of $ 160. The manager calculates that the quantity of occupied rooms fell 10%.


a. Which is the price elasticity?

b. Which is the tax revenue for the town?

c. How much of that revenue is paid by the hotel and the consumer?

d. Draw two Supply-Demand graphs: one with the situation before the tax, and another after the tax.

Recommended: Watch some of these videos before answering.

The Burden of the Tax.

Taxes on Producers.

Kahn Academy. Taxes and elastic demand.

Kahn Academy. Taxes and Inelastic Demand.

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