Chapter 8 Homework Answer Keys

Chapter 8 Homework Answer Keys - Adding to both sides of...

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Chapter 8 Homework Answer Keys 11. a. Figure 1 shows the effect of a \$10 tax on hotel rooms. The tax revenue is represented by areas A + B, which are equal to (\$10)(900) = \$9,000. The deadweight loss from the tax is represented by areas C + D, which are equal to (0.5)(\$10)(100) = \$500. Price of Hotel Room Quantity of Hotel Rooms 900 A B D C D S 108 100 1,000 98 Figure 1 b. Figure 2 shows the effect of a \$20 tax on hotel rooms. The tax revenue is represented by areas A + B, which are equal to (\$20)(800) = \$16,000. The deadweight loss from the tax is represented by areas C + D, which are equal to (0.5)(\$20)(200) = \$2,000. 800 A B D C D S 116 100 1,000 96 Quantity of Hotel Rooms Price of Hotel Rooms Figure 2 When the tax is doubled, the tax revenue rises by less than double, while the deadweight loss rises by more than double. 1

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12. a. Setting quantity supplied equal to quantity demanded gives 2 P = 300 –
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Unformatted text preview: . Adding to both sides of the equation gives 3 = 300. Dividing both sides by 3 gives = 100. Plugging = 100 back into either equation for quantity demanded or supplied gives Q = 200. b. Now P is the price received by sellers and P + T is the price paid by buyers. Equating quantity demanded to quantity supplied gives 2P = 300 - ( + ). Adding to both sides of the equation gives 3 = 300 – . Dividing both sides by 3 gives = 100 – /3. This is the price received by sellers. The buyers pay a price equal to the price received by sellers plus the tax ( + = 100 + 2 /3). The quantity sold is now = 2 = 200 – 2 /3. c. Because tax revenue is equal to x and = 200 – 2 /3, tax revenue equals 200- 2 2 /3. Figure 3 shows a graph of this relationship. Tax revenue is zero at = 0 and at = 300. Figure 3 2...
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Chapter 8 Homework Answer Keys - Adding to both sides of...

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