Question

Monthly rent New supply with a $100 tax $600 Initial supply $560 $500 $460 Demand 3,000 8,000 10,000 Number of apartments Figure 6.8 Refer to Figure 6.8. Suppose that your city imposes a tax of $100 per apartment and the supply curve is a vertical line at Q 10,000. Then: O A. consumers and landlords split the tax B. landlords pay the whole amount of the tax. O C. consumers pay the whole amount of the tax. O D. There is not sufficient information.

Answer 1

The equilibrium will be determined by the intersection of house demand and house supply curve. So initial equilibrium rent of the house is $500.

Equilibrium quantity of house=10,000 units

But when the government imposes taxes of $100 per house, so the supply curve of the houses shifts leftward. As a result, equilibrium price increases $560. So buyers pay $560 and seller will receive $460.

Tax paid by buyers=560-500

=$60

Tax received by sellers=500-460

=$40

It means both consumer and sellers share the tax.

Hence option a is the correct answer.