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27 October, 16:16

Consider the following statement based on a positive economic analysis that assumes that all other things remain constant: Falling gasoline prices will result in additional vacation travel. Which of the following (initially assumed constant) could occur and thus offset the stated outcome? A. Higher employment. B. An increase in hotel taxes at popular resorts. C. Improved highway safety. D. Lower income taxes.

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  1. 27 October, 18:49
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    The answer would be option be option B. or An increase in hotel taxes at popular resorts.

    Explanation:

    If everything else remains constant, a fall or decrease in oil prices will be a good news for most of the households and they will set out for vacation travel. Now, if suddenly the tax rates charged by popular hotels or resorts increase simultaneously or following the decrease in oil prices, it will increase the aggregate hotel or resort charges for the families and households or even for any individual traveler. Hence, an increase in hotel or resort taxes would discourage the individuals and households to undertake any current or future travel plans and therefore, offset the initial vacation plans that primarily resulted from cheaper gasoline or oil prices.
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