Scenario In 2008, the government initiated an $8,000 tax credit for first-time h

Question

Scenario

In 2008, the government initiated an $8,000 tax credit for first-time homebuyers in an effort to stimulate the housing market. This means that all first-time homebuyers in 2008 were eligible to take an $8,000 deduction from their taxable income for that year. By offering this tax credit, the government was attempting to influence the housing market.

•How does the tax credit affect market equilibrium for homebuyers and sellers?

•In your opinion, should the first-time homebuyer credit have been increased, extended, or eliminated? Explain your position. •What likely happened to the supply and demand curves when the tax credit was implemented?

Explanation / Answer

The tax credit is like a subsidy Effect on demand curve::It boosts the consumer demand, it will shift the demand curve up and right

Effect on dupply curve:Suppky curve will remain in same position as it was.

Because consumers will pay less the producers can increase the price as consumers are artificially been given 8000$ benifit,and encouraged to buy more.producers are encouraged to produce more.

The price and quantity produced both will increase eventually.

New equilibrium price will be higher.

In my opinion there should be no subsidy as its artificial inflate the demand in the end the price will rise, so there must be no subdidy like tax credit.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.