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Leapfrog city has two rings of vacant land suitable for housing, one that is three miles from the center and a second that at the edge of the city, six miles from the center. Both rings were expected to be developed in the next year. Suppose the city imposes a new development tax of $20,000 per new house. The tax will be paid, in legal terms, by the firm that builds the house. a. Use a supply-demand graph to show the effects of the development tax on the city’s housing market. b. Arrows up, down, or horizontal: The tax the equilibrium price of the new housing, the equilibrium quantity of housing, demand for vacant land, and the price of land. c. According to Ms. Wizard, “The tax will prevent the development of the outer ring of vacant land (six miles from the center).” Draw a graph that is consistent with Wizard’s statement.
Chapter 9, Problem 9(choose chapter or problem)
Incidence of Development Tax
Leapfrog city has two rings of vacant land suitable for housing, one that is three miles from the center and a second that at the edge of the city, six miles from the center. Both rings were expected to be developed in the next year. Suppose the city imposes a new development tax of $20,000 per new house. The tax will be paid, in legal terms, by the firm that builds the house.
(a). Use a supply-demand graph to show the effects of the development tax on the city’s housing market.
(b). Arrows up, down, or horizontal: The tax _____ the equilibrium price of new housing, _____ the equilibrium quantity of housing, ______ the demand for vacant land, and _____ the price of land.
(c). According to Ms. Wizard, “The tax will prevent the development of the outer ring of vacant land (six miles from the center).” Draw a graph that is consistent with Wizard’s statement.
Questions & Answers
QUESTION:
Incidence of Development Tax
Leapfrog city has two rings of vacant land suitable for housing, one that is three miles from the center and a second that at the edge of the city, six miles from the center. Both rings were expected to be developed in the next year. Suppose the city imposes a new development tax of $20,000 per new house. The tax will be paid, in legal terms, by the firm that builds the house.
(a). Use a supply-demand graph to show the effects of the development tax on the city’s housing market.
(b). Arrows up, down, or horizontal: The tax _____ the equilibrium price of new housing, _____ the equilibrium quantity of housing, ______ the demand for vacant land, and _____ the price of land.
(c). According to Ms. Wizard, “The tax will prevent the development of the outer ring of vacant land (six miles from the center).” Draw a graph that is consistent with Wizard’s statement.
ANSWER:Step 1 of 5
Given:- Leapfrog city has two rings of vacant land suitable for housing, one that is three miles from the center and a second that at the edge of the city, six miles from the center. Both rings were expected to be developed in the next year.
As the distance between a housing unit and the city centre decreases, so does the willingness to pay for a home. In general, condos built close to the city are expensive, whereas those in the suburbs are less expensive. Each housing unit would be subject to a tax, which would result in a decrease in both supply and demand for homes.