What is the revenue of this property tax

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In a fictional city, the city council introduces a new $500 per month tax on one-bedroom rental units. The tax raises the typical monthly rent on one-bedroom units from $950 per month to $1,050 and it lowers the number of one-bedroom units rented out from 42,000 to 38,000. a. Using the mid-point formula, find the price elasticity of demand for one-bedroom rentals. b. What is the revenue of this property tax? c. What share of the tax burden falls on landlords? What share falls on renters? Theory shows that buyers’ share of tax burden = (price elasticity of supply)/ (price elasticity of supply – price elasticity of demand). d. Use the formula above and the results from part a., part b., and part c. to estimate the price elasticity of supply of one-bedroom units in this fictional city. e. In a supply and demand diagram, using linear curves, illustrate the market for one-bedroom rentals before and after the enactment of the property tax and highlight the tax deadweight loss.

Reference no: EM13886611

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