Question

Some economists have argued that a land tax is the best kind of tax. Consider a county with exactly 18 plots of land that can be farmed, meaning that the supply of land is fixed at 18. Demand for farmland is given by D(p)=80−1p, where p is in thousands of dollars.

1st attempt

Part 1   (3 points)

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What is the equilibrium price for farmland?   $ ______

Suppose that the local government puts in place a $2,000 land tax per plot. This tax is charged to buyers when they purchase land. What price will buyers pay with the tax in place? How many plots of land will be sold? (Recall that prices are in thousands.)

Price buyers pay (not including the tax):    $ _____

Number of plots sold:   _____   

Part 2   (2 points)

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What percentage of the tax ends up being paid by buyers?____ %    

Calculate the deadweight loss from the tax = _____     

Answer 1