S. Klepper, Economics 73-100, Fall 2009

Mini-test 5

For many years the city of Pittsburgh taxed hotels $10 for each room that was occupied per day. To finance its two new stadiums and its new convention center, it has decided to double the tax on hotel rooms. The tax is collected from hotels, which will have to pay the city $20 for each occupied room per day. Consumers pay a price for their room, and the hotels pay the tax out of the proceeds they receive from consumers.

Which of the following statements correctly describe the effects of the increase in the tax on the price and quantity of hotel rooms rented in the short run? Mark true for a correct answer and false for an incorrect one and provide explanations for each of your answers.

_____1. The market supply curve for Pittsburgh hotel rooms will shift to the left.

_____2. The market demand curve for hotel rooms will be unchanged.

_____3. Total expenditures on hotel rooms will decline.

_____4. The occupancy rate of hotel rooms, which equals the percentage of rooms occupied, will fall.

_____5. Total tax revenue collected by the city of Pittsburgh will rise by 100%.