The residents of Rental City all own their own plot of land, but rent mobile homes. The demand for mobile homes has an elasticity of zero at 2,000 homes. The supply of mobile homes for rent is infinitely inelastic at a rate of $8,000 per year. The town council of Rental City introduces a property tax on the rental mobile homes. The tax is $1,000 per year payable by the rental company.a) How many acres are rented? Explain. What is the market rent of an acre? Explain.
b) Suppose the city imposes a land tax of $40 per acre that by statute falls on the renter. What happens to the gross rent per acre? To the net rent per acre? What happens to the total number of acres rented? Explain. How much tax is collected?
c) Given your answers to (b), what are the effects of the land tax on the welfare of mobile home residents (i.e. what happens to their consumer’s surplus)? Be quantitative. Explain.
d) Given your answers to (b) and (c) what are the effects of the land tax on the welfare of the absentee land owners (i.e. what happens to their producer’s surplus)? Be quantitative. Explain.
e) Given your answers to (b), (c) and (d) is the land market efficient after the tax is imposed (i.e. is there a deadweight loss associated with the tax)? Explain.
f) On whom does the economic incidence of the tax fall? Explain.
The residents of Rental City all own their own plot of land, but rent mobile homes. The demand for mobile homes has an elasticity of zero at 2,000 homes. The supply of mobile homes for rent is infinitely inelastic at a rate of $8,000 per year. The town council of Rental City introduces a property tax on the rental mobile homes. The tax is $1,000 per year payable by the rental company.a) How many acres are rented? Explain. What is the market rent of an acre? Explain.
b) Suppose the city imposes a land tax of $40 per acre that by statute falls on the renter. What happens to the gross rent per acre? To the net rent per acre? What happens to the total number of acres rented? Explain. How much tax is collected?
c) Given your answers to (b), what are the effects of the land tax on the welfare of mobile home residents (i.e. what happens to their consumer’s surplus)? Be quantitative. Explain.
d) Given your answers to (b) and (c) what are the effects of the land tax on the welfare of the absentee land owners (i.e. what happens to their producer’s surplus)? Be quantitative. Explain.
e) Given your answers to (b), (c) and (d) is the land market efficient after the tax is imposed (i.e. is there a deadweight loss associated with the tax)? Explain.
f) On whom does the economic incidence of the tax fall? Explain.
