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Economic Impact of Taxes on Hotel Rooms and Televisions: Supply and Demand Analysis

An analysis of the economic impact of taxes on hotel rooms and televisions, exploring supply and demand dynamics.

Ethan Wilson
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USC PriceSCHOOL OF PUBLIC POLICYPPD501ab | Economics for Policy, Planning, and Development1Economic Impact of Taxes on Hotel Rooms and Televisions: Supply andDemand AnalysisWeek 05 Assignment 01Tax on Hotel Rooms1.Draw a graph of supply and demand for hotel rooms in Sacramento. Label equilibrium priceand quantity.a.The tax on hotel rooms is 12% in Sacramento. Assume the government collects the taxdirectly from the hotels. How would this tax affect supply of hotel rooms in Sacramento?(Note: This is a little different from the per-unit tax discussed in class. This percentage,ad valorem, tax will affect the curve differently, but will not change your analysis much.)What is the effect on price paid by the consumer, and price received by the supplier?Label the producer surplus, the consumer surplus, tax revenue, and deadweight loss. (5points)A levy of tax of 12% on the hotel rooms in Sacramento would increase the price beingpaid by the consumer by another 12%. This would reduce the demand forcing the supplyto be adjusted to the same quantity which has decreased from OQ to OQt. Theconsumer surplus also is reduced by A as shown in the figure above and the supplierssurplus is reduced by B and the dead weight is B+C the triangles. Tax revenue receivedby the government is A from the sale of the product OQtwhich is 12% X OQt.b.Describe the elasticity of supply of hotel rooms in Sacramento. Do you think it is more orless elastic than demand for hotel roomsin Sacramento? Why? (5 points).Sacramento being one the busiest cities in California has a competitive market in thehospitality industry and has aninelastic supply of hotel rooms. The flowing population ismore than the locals here and the demand for hotel rooms has been 62 to 64% only and

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Economics

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