Question

The following data depict the fiscal characteristics of two school districts in a metropolitan area, each composed of identical single-family houses with one pupil per house:

School District A Characteristic School District B
$200,000 Per pupil property value $50,000
2% Property tax rate 8%
$4,000 Per pupil expenditure $4,000

The voters who have chosen to live in both districts desire and select $4,000 of educational spending per pupil and collect property taxes to finance it.

a. Would a voter in district B prefer to live in a big ($200,000) house in district A? Why?

b. Would a voter in B prefer to live in a small ($50,000) house in district A? Explain.

c. Suppose that there is a third school district to choose from with an equal number of big and small houses so that the average per-pupil value is $125,000. What tax rate is required in this district to spend $4,000 per pupil? If small houses also cost $50,000 in this district, are small house consumers better off here or in B? If big houses also cost $200,000 in this district, are big-house consumers better off here or in A? Make sure to calculate and compare the property taxes paid to benefits received for each type of housing consumer to justify your answer.

d. Given you r answers to part c, what do you expect will happen to the demand for big and small houses in the third district? What will happen to the prices of these houses in this mixed district? Characterize the equilibrium that would allow all three districts to exist simultaneously in terms of house values.

Answer 1

Yes, the voter would prefer, because,

1. Compared to district B, District A has much lower rate of tax.
2. The property value of district A is more than district B.

B, the rate, to collect $10000 from the house, which $200,000 in value is $66.666(per $1000 of value). In the third district, the people of small house($50,000) would be more beneficial, because in the tax rate $66.666 per $1000 dollars, the spend only $6666.6 towards the property tax, instead of $10,000 in district B.

In the district c, people having big House costs $200000would be better off. Because at the rate of $66.666 per $1000 dollars for property tax, raise their expenses from $10,000 to $13,333.3.

C, the property tax of small house is less than the bigger one. So the demand for small houses will increase in district c, than the big houes. So there would be a chance of price increase for small houses and price decline for big houses.