Final answer:
The imposition of a tax on hotel rooms leads to a decrease in equilibrium quantity if the supply is elastic. If the supply is inelastic, like with beachfront hotels, the equilibrium quantity remains stable and the tax burden falls on the sellers.
Step-by-step explanation:
Relative to a situation in which hotel rooms are not taxed, the imposition of a tax on hotel rooms causes the equilibrium quantity of hotel rooms to decrease if the supply is elastic, meaning sellers can easily reorganize their businesses or choose not to supply the taxed good. However, if the supply is inelastic, such as with beachfront hotels, where sellers cannot move their business or find alternative avenues easily, the equilibrium quantity of hotel rooms is not greatly affected. In this case, the tax burden falls on the sellers who have to accept lower prices for their business, while the equilibrium quantity remains relatively stable.
In other words, when the tax is introduced, it creates a wedge between the price paid by consumers (Pc) and the price received by producers (Pp). This tax difference impacts the market differently based on the elasticity of supply and demand. An inelastic supply means that the tax doesn't significantly change the quantity of hotel rooms sold; instead, it reduces the profit margin for sellers.