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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.

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    USC Price SCHOOL OF PUBLIC POLICY PPD501ab | Economics for Policy, Planning, and Development 1 Economic Impact of Taxes on Hotel Rooms and Televisions: Supply and Demand Analysis Week 05 Assignment 01 Tax on Hotel Rooms 1. Draw a graph of supply and demand for hotel rooms in Sacramento. Label equilibrium price and quantity. a. The tax on hotel rooms is 12% in Sacramento. Assume the government collects the tax directly 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. (5 points) A levy of tax of 12% on the hotel rooms in Sacramento would increase the price being paid by the consumer by another 12%. This would reduce the demand forcing the supply to be adjusted to the same quantity which has decreased from OQ to OQt. The consumer surplus also is reduced by A as shown in the figure above and the suppliers surplus is reduced by B and the dead weight is B+C the triangles. Tax revenue received by the government is A from the sale of the product OQt which is 12% X OQt. b. Describe the elasticity of supply of hotel rooms in Sacramento. Do you think it is more or less elastic than demand for hotel rooms in Sacramento? Why? (5 points). Sacramento being one the busiest cities in California has a competitive market in the hospitality industry and has an in elastic supply of hotel rooms. The flowing population is more than the locals here and the demand for hotel rooms has been 62 to 64% only and

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