Suppose that, in the absence of any tax whatsoever, the equilibrium price of a flat is €150,000. Now suppose that the government requires buyers in the housing market to pay a tax of €5,000 on every flat purchased.

a. Draw a supply and demand diagram of the market for flats without the tax. Show the price paid by consumers, the price received by producers and the quantity of flats bought and sold. What is the difference between the price paid by consumers and the price received by producers?

b. Now draw a supply and demand diagram for the market for flats with the tax. Show the price paid by consumers, the price received by producers and the quantity of flats bought and sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of flats bought and sold increased or decreased?