(Figure: The Market for Hotel Rooms)Use Figure: The Market for Hotel Rooms.Suppose with no tax the equilibrium price is $110 and the equilibrium quantity is 250.If the local government levies a tax of $30 per night on each hotel room rented,the new equilibrium price will equal _____ and the new equilibrium quantity will equal _____.

Question

Quizplus · Accepted Answer

When a tax of $30 per night is levied on each hotel room rented, the supply curve shifts upwards by the amount of the tax ($30) to S'. The new equilibrium price will be where the new supply curve (S') intersects with the original demand curve (D), which is at a price of $130. At this new equilibrium price, the quantity demanded will decrease from 250 to 150 (the new equilibrium quantity). Therefore, the correct answer is B.

(Figure: the Market for Hotel Rooms)Use Figure: the Market for Hotel