Suppoee a household bas the following housing demand fumction Qh=ph0.2(ITI) Where QN is the syuare footage of the house that the household chociess, and is the income tax rate, I is the household's incotme, and ph is the price of hoesing per square foot. So the household always spends 20% of its after-tax income on hotsing. 1. (5 points) If the houschold's income is $10,000, the income tax rate is 0.25 (or 25% ). and the price of howing per square foot is $10, how many square feet of home will the house dentand? Plevse show how you found your answer. 2. (5 points) Now suppose that the government wants to help honseholds with their housing costs by making all houking costs tax deductible, Given that honsing cuets are tax deductible, what is the effective after-tax cost of a square foot of housing? Please show how you found your answer. 3. (7 points) Write down the demand function incorporating the fact that hotasing is tax deductible, 4. (5 points) How much total lousing will the household consume under the new tax deduction rules? Please show how you found your answer. 5. (5 points) How much income tax reventse does the foderal government lose when it allows housing costs to be tax deductible? In order to determine forgone income tax, cotnpare the income tax revenue the government receives before and after allowing honsing costs to be deductible. Please show how you found your answer. 6. (8 points) If instead of allowing housing to be tax deductible, the government gave hoteseholds a tax rebate equal to the amount of incomse tax it foregoes in part (5) and the houschold treats this rebate as equivalent to incotne (xo just adds it to its after-tax income) how many square feet of housing will the houschold consume? How does thas compare to your answex in part (4)? Provide sorae coonotaic intuition for why these results ate eithe the same or different. Plense show hom you fotmd your answer. Suppoee a household bas the following housing demand fumction Qh=ph0.2(ITI) Where QN is the syuare footage of the house that the household chociess, and is the income tax rate, I is the household's incotme, and ph is the price of hoesing per square foot. So the household always spends 20% of its after-tax income on hotsing. 1. (5 points) If the houschold's income is $10,000, the income tax rate is 0.25 (or 25% ). and the price of howing per square foot is $10, how many square feet of home will the house dentand? Plevse show how you found your answer. 2. (5 points) Now suppose that the government wants to help honseholds with their housing costs by making all houking costs tax deductible, Given that honsing cuets are tax deductible, what is the effective after-tax cost of a square foot of housing? Please show how you found your answer. 3. (7 points) Write down the demand function incorporating the fact that hotasing is tax deductible, 4. (5 points) How much total lousing will the household consume under the new tax deduction rules? Please show how you found your answer. 5. (5 points) How much income tax reventse does the foderal government lose when it allows housing costs to be tax deductible? In order to determine forgone income tax, cotnpare the income tax revenue the government receives before and after allowing honsing costs to be deductible. Please show how you found your answer. 6. (8 points) If instead of allowing housing to be tax deductible, the government gave hoteseholds a tax rebate equal to the amount of incomse tax it foregoes in part (5) and the houschold treats this rebate as equivalent to incotne (xo just adds it to its after-tax income) how many square feet of housing will the houschold consume? How does thas compare to your answex in part (4)? Provide sorae coonotaic intuition for why these results ate eithe the same or different. Plense show hom you fotmd your
