The government has decided to tax Airbnb hosts for hosting short-term tenants. (For the question parts below, feel free to make several plots)

a. Plot the market for short-term rentals. Identify the market equilibrium.

b. On your plot, show how the tax changes the rental market and market equilibrium. Show the tax rate.

c. What is the price that hosts receive for their service? (Label on your plot.)

d. Describe how much of the tax is borne by hosts and how much is borne by tenants. (Bonus: Identify, with an area on your plot, the total revenue the government makes with this tax).

e. Why is some of the tax borne by tenants if hosts are required to pay the tax to the government?

f. After the tax is imposed, outrage about the tax incites a media storm. The result of this is that people start staying at Airbnbs more frequently. Important: People who have lower than average income are behind this change. Show, on a plot, how this impacts the market and the market equilibrium.

g. After the media outrage shock, the tax incidence changes. Is the share of the tax borne by tenants higher or lower? Why?