The residents of Mobile City all live in mobile homes which they own. However, they rent land for their homes from absentee landowners. The rental supply of land is inelastic at 100 acres. The demand curve for acres is given by: R = $400 - $2L, where "R" is the monthly rent per acre and "L" is the quantity of acres rented.
a) How many acres are rented? Explain. What is the market rent of an acre? Explain.
b) Suppose the city imposes a tax of $40 per acre that by statute falls on the renter. What happens to the gross rent per acre? To the net rent per acre? What happens to the total number of acres rented? Explain. How much tax is collected?
c) Given your answers to (b), what are the effects of the land tax on the welfare of mobile home residents (i.e. what happens to their consumer's surplus)? Be quantitative. Explain.
d) Given your answers to (b) and (c) what are the effects of the land tax on the welfare of the absentee land owners (i.e. what happens to their producer's surplus)? Be quantitative. Explain.
e) Given your answers to (b), (c) and (d) is the land market efficient after the tax is imposed (i.e. is there a deadweight loss associated with the tax)? Explain.
f) On whom does the economic incidence of the tax fall? Explain.