Question from Past Microeconomics Qualifying Exam[]

Spring 2006 - Section I, Question two, George Mason University

T, F, U. State first whether the following statements are true, false or uncertain. Then briefly explain your reasoning in four or five sentences. You may use a graph if it helps clarify your answer.

A city is considering building a new baseball stadium to be financed by a tax on hotels that serve tourists. With this financial arrangement, the citizens of the city will avoid having to pay for the new stadium.


False. The citizens will pay indirectly through less tourism. Tourism is a pricesensitive good like everything else and if it is more expensive to go to one place not as many people will go there. Therefore, hotels will have fewer guests, restaurants will have fewer customers, tourist attractions will be less frequented, and most importantly, there will be fewer jobs in the cities tourism industry, which will hurt people directly.

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