(a) Show the market for housing in equilibrium on a diagram, where demand is less elastic than supply, and label the respective consumer and producer surpluses. Discuss whether this market is Pareto efficient. (b) Assume that the State Government imposes a per-unit tax on the sellers of houses. A new diagram, shows the imposition of this tax on the market for housing. Does the imposition of this tax cause a Pareto improvement to the market, explain? (c) Is the tax imposed in part (b) effective for the collection of Government revenue? Justify your answer with reference to your diagram in part (b).
(a) Show the market for housing in equilibrium on a diagram, where demand is less elastic than supply, and label the respective consumer and producer surpluses. Discuss whether this market is Pareto efficient. (b) Assume that the State Government imposes a per-unit tax on the sellers of houses. A new diagram, shows the imposition of this tax on the market for housing. Does the imposition of this tax cause a Pareto improvement to the market, explain? (c) Is the tax imposed in part (b) effective for the collection of Government revenue? Justify your answer with reference to your diagram in part (b).
Chapter7: Market Efficiency And Welfare
Section: Chapter Questions
Problem 5P
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Question
(a) Show the market for housing in equilibrium on a diagram, where demand is less elastic than supply, and
label the respective
(b) Assume that the State Government imposes a per-unit tax on the sellers of houses. A new diagram,
shows the imposition of this tax on the market for housing. Does the imposition of this tax cause a Pareto
improvement to the market, explain?
(c) Is the tax imposed in part (b) effective for the collection of Government revenue? Justify your answer with
reference to your diagram in part (b).
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