Answer:
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 = × (R - R₁) × Size of tax
= × (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 = × (R - R₂) × Size of tax
= × (1000 - 800) × $20
= $2000
Tax revenue doubles while the deadweight becomes more than double