The following graph shows the supply and demand curves for Airbnb rentals in the hypothetical economy of Comfytown in 2010, two years after Airbnb launched; the equilibrium quantity of rentals was 100 rooms per day, and the equilibrium price was $150 per room. At that time, Comfytown was enforcing tax regulations on the market for hotels, but it hadn't yet initiated a tax arrangement on room rentals through Airbnb. Realizing that there is a great potential for increased tax revenue, government officials in Comfytown began discussing how they could align Airbnb rentals with hotel stays from a tax perspective. Fast-forward to 2018, at which time Comfytown has finally made tax arrangements with Airbnb to levy a $40-per-room tax on rentals. However, now the market conditions have changed. More hosts have now entered the Airbnb market, and awareness of this hotel alternative has increased demand. The following graph shows the demand and supply curves for Airbnb rentals in 2018. Use the green rectangle (triangle symbols) to illustrate the area representing the revenue raised by a $40-per-room tax. Then use the black paint (cross symbol) to shade the area representing the deadweight loss generated by this tax. PRICE (Dollars per rental 200 190 100 170 100 190 140 130 120 110 100 Demandag10 Tax Wedge GO 100 120 Tax Revenue Supply 2018 140 160 100 200 Deadweight Lose RENTALS (Rooms per day) 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: IM 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 Demand, respectively, on the following graph). 17% Dewa 10 2 RERTALE BRE Deadweight Loss Tax Revenue Scenario (Dollars per day) (Dollars per day) Under scenario A, demand is relatively elastic, and the tax results in a deadweight loss and under scenario B. This suggests that, all other things being equal, the government should tax industries with a relatively, demand if it wants to minimize deadweight loss. government revenue than elasticity of