In the text we argued that a tax on landlords would not get passed along to the renters. What would happen if instead the tax was imposed on renters?
(a) To answer this question, consider the group of people in Problem 1.1.
What is the maximum that they would be willing to pay to the landlord if they each had to pay a $5 tax on apartments to the city? Fill in the box below with these reservation prices.
b) Using this information determine the maximum equilibrium price if there are 5 apartments to be rented. $13.
(c) Of course, the total price a renter pays consists of his or her rent plus the tax. This amount is $18.
(d) How does this compare to what happens if the tax is levied on the landlords? It’s the same.