Question

The supply curve for hotels in las vegas is perfectly inelastic. if a $25 tax is placed per night on hotel rooms, then the: selected answer will be automatically saved. for keyboard navigation, press up/down arrow keys to select an answer.

a hotel owners and the guests will share the taxes equally.
b guests will pay all of the tax.
c hotel owners will pay all of the tax.
d tax will be shared by the hotel owners and the guests with one of them paying more than the other.

Answer 1

With a perfectly inelastic supply curve for hotels in Las Vegas, the hotel owners bear the entire burden of the tax, unable to pass it onto consumers, thus hotel owners will pay all of the tax.C is the correct answer.

Step-by-step explanation:

When the supply curve is perfectly inelastic, as in the case of hotels in Las Vegas, an imposed tax will not affect the quantity supplied because suppliers cannot adjust their quantity in response to tax changes. Instead, the tax creates a wedge between the price consumers pay (Pc) and the price producers receive (Pp).

With inelastic supply, the producers, or hotel owners in this case, cannot pass the tax onto consumers by raising prices since the quantity does not change, and thus they bear the tax burden.

Given that the supply is inelastic and consumer demand is more elastic, meaning consumers have alternative vacation choices, the economic incidence of the tax falls more heavily on the producers. The result is that hotel owners will pay all of the tax, as they cannot raise prices sufficiently to pass the tax onto consumers. So, the mentioned correct option in the final answer here is (c) hotel owners will pay all of the tax.