Question

There is a coastal community north of San Francisco that has 2,000 houses (there cannot be less than 2,000 houses). At a price of $200,000 area residence would purchase 4,000 homes but if the houses were $800,000 all of the residence would move out of the community. Currently the market price of a house in this area is $500,000 and all 2,000 homes are purchased. However, if the market price increased to $700,000, builders would add 50 homes to the community. (A) What is the linear supply function? (B) What is the linear demand function? (C) Assume a 1.5% tax is collected upon property purchase. Graph supply, demand and the tax. Label all intercepts and market equilibrium price and quantity. (include in upload file only) (D) How much revenue is collected from the tax? Does the tax burden fall on home sellers or buyers? Is there a DWL? Recently some San Francisco businesses have allowed their employees to permanently work from home which has resulted in more demand for homes in this coastal area. Now at the market price of $500,000 area residence would purchase 5,000 homes, but if the houses were $2,000,000 all of the residence would move out of the community. Supply has not changed. (E) What is the new market price (without the tax)? (F) Again, assume a 1.5% tax upon property purchase of the purchase price. Draw a new graph and indicate the area of the DWL. Label all intercepts and market equilibrium price and quantity. (include in upload file only) (G) Does the majority of the tax burden fall on home sellers or buyers?

Answer 1

A) = 2000 supply in fixed at for P<50 mises thata O over But if price supply mises $200,000 50 more homes for every Qs 2000 for p < 500000 P- 50000 - 2000 + x 20000 4000 P 500 : 2000 + 4000 4 P :: Qs : 1875 + 4000 00 for p > 5000 ca Demand in at 800 000 Jero ( 5 500000-200000) Q 0000 + Bored Pa AO ?, P = 800 000 + 300000 Q ఆరత 150 Qd QQQQ08 - Р 1. Qd 800000 150 150 co Demand after tax : Qta 80000 1015P 15 150 Qs 2000 P = 492610.837

P. Qs 800000 488 T 34 500,000 A9261018 Tax rer Demand Cod Quote Q 2000 (D) Revenue from dax! TR = 2000x tax ..TR = TR = 2000x (500000 - 492610-8) = 14778326 :.DWL : 0 (E) Demand 'n now: 2000000-500000 od Pa 200 10 + 5000 : 200 O OOO 300 Od Qs 11 1875 Р 4000

Equilibrium : Qt. as 20 000 Р 300 187 5 + 4000 P 20000OO 308 7500 000 + P 900♡ an, 200 -56 2500 + 0 025 p 2 1045 P 1437 500 = 13 37 209.3 = 2209.3 F) After tax demand : 20 000 3 1015 P 300 P 4000 os 1875 equilibrium : P=131880 7:339 Q = 220417 Buyers pay: Р 2000000l Pb=1338 589 1338589 1337209 1318807 2000 20000 3 e) Tax 1380:15 buyers ob Tax selleres ts= 18401.961 Then the burde falls to the Sellee more