Comparing the market for Airbnb rentals for the two years is complicated by the fact that the graph depicts three changes: total demand increases, total supply increases, and the slope of the demand curve changes. To isolate the effect of elasticity on deadweight loss and government revenue, consider the following scenario: Suppose the government wants to estimate the tax revenues from room rentals for 2030, and economic models predict two different scenarios (A and B), each with a different demand curve (labeled Demand, and Demands, respectively, on the following graph). Use the objects to the right of the graph to help you determine the potential deadweight loss and revenues generated by the same $30 tax in 2030 under each scenario and enter these values into the following table. (Note: You will not be graded on your placement of any of the objects on the graph.) 200 Demand, 190 Tax Revenue 180 Demand, 170 160 Deadweight Loss 150 140 130 120 110 Supplyo 100 20 40 60 80 100 120 140 160 180 200 RENTALS (Rooms per day) PRICE (Dollars per rental)

Comparing the market for Airbnb rentals for the two years is complicated by the fact that the graph depicts three changes: total demand increases, total supply increases, and the slope of the demand curve changes. To isolate the effect of elasticity on deadweight loss and government revenue, consider the following scenario: Suppose the government wants to estimate the tax revenues from room rentals for 2030, and economic models predict two different scenarios (A and B), each with a different demand curve (labeled Demand, and Demands, respectively, on the following graph). Use the objects to the right of the graph to help you determine the potential deadweight loss and revenues generated by the same $30 tax in 2030 under each scenario and enter these values into the following table. (Note: You will not be graded on your placement of any of the objects on the graph.) 200 Demand, 190 Tax Revenue 180 Demand, 170 160 Deadweight Loss 150 140 130 120 110 Supplyo 100 20 40 60 80 100 120 140 160 180 200 RENTALS (Rooms per day) PRICE (Dollars per rental)

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter4: Estimating Demand

Section: Chapter Questions

Problem 6E

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According to studies undertaken by the U.S. department of agriculture, the price elasticity of demand for cigarettes is between -0.3 and -0.4. Suppose congress, influenced by studies linking cigarette smoking to cancer plans to raise the excise tax in cigarettes so the price rises by 10 percent. The expected effect the price increase will have on cigarette consumption is?
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Consider a public policy aimed at smoking. The government commissioned a research firm, Super Consulting, to conduct a study on the market demand for cigarettes in Malaysia. The firm reported that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes costs $2 and the government wants to reduce smoking by 20 percent, by how much should it increase the price? If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking after 1 year from now or 5 years from now? Explain Super Consulting also found that teenagers have higher price elasticity than adults. Why might this be true? Explain Outline and discuss the appropriate economic policies that can be implemented to reduce smoking.