Question

The tax​ _______.

A. makes the demand for land more elastic and the supply of land less elastic
B. decreases the equilibrium quantity of land below the efficient level and creates a deadweight loss
C. decreases the equilibrium quantity of land below the efficient level and eliminates the deadweight loss
D. leaves the equilibrium quantity of land​ unchanged, so the market is efficient

Answer 1

B. decreases the equilibrium quantity of land below the efficient level and creates a deadweight loss

Step-by-step explanation:

An efficient economy is one whose equilibrium between supply and demand for land is due to endogenous factors via price. Under the law of supply and demand, price will be the adjustment vector that will balance the land market.

When the government introduces a tax, the price parameter changes, introducing an inefficiency called deadweight. Deadweight is a term widely used in economics to designate efficiency losses in markets when a tax is introduced. Thus, the economy will move from its natural equilibrium to a new artificial equilibrium, where the amount traded will be smaller than before.