a) So there are 900 rooms rented after the tax, and the local government gets $10 per rented room, so Revenue = # of rooms rent * tax per room
Revenue = 900 * 10 = $9000
Deadweight loss = .5*change in price*change in quantity demanded
Our price changed by (100-108) = -8
Change in quantity demanded (900-1000) = 100
So deadweight loss = .5*-8*100 = -400 I think that they typically just want the positive number since the negative is implied by the word loss.
Revenue = 900 * 10 = $9000
Deadweight loss = .5*change in price*change in quantity demanded
Our price changed by (100-108) = -8
Change in quantity demanded (900-1000) = 100
So deadweight loss = .5*-8*100 = -400 I think that they typically just want the positive number since the negative is implied by the word loss.
b)We do the same steps as in “a.” Revenue = 800*20 = $16000
Our price changed by 100-115 = 15
Quantity demanded changed by 1000-800 = 200
Deadweight loss = .5 * 15* 200 = 1500
They more than doubled because if you think about it, on the graph these values are the area of triangles. So as you move the base out farther the area more than doubles.
If this explanation doesnât make sense to you, just comment and Iâll try to answer your questions.
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