Asked by Jaquin Fielder on May 26, 2024
Verified
Kate is a personal trainer whose client William pays $80 per hour-long session. William values this service at $100 per hour, while the opportunity cost of Kate's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training?
A) Kate and William will agree to a new price somewhere between $85 and $100.
B) Kate and William will agree to a new price somewhere between $70 and $110.
C) Kate will no longer offer personal training services to William because she must charge more than $100 in order to cover her opportunity costs and pay the tax.
D) The price will remain at $80, and Kate will pay the $10 tax.
Opportunity Costs
The cost of the next best alternative foregone when a decision is made to choose one option over another.
Tax
Mandatory financial charges imposed by a government on individuals and organizations to fund public expenditures.
Market Price
The current price at which a good or service can be bought or sold, determined by the balance of supply and demand in the market.
- Comprehend the impact of taxation on the behaviors of buyers and sellers, particularly in relation to their engagement in the market and the overall economic well-being.
Verified Answer
AH
Abbie HowellMay 29, 2024
Final Answer :
A
Explanation :
Given the tax, Kate's minimum acceptable price increases to $85 ($75 opportunity cost + $10 tax), while William's maximum willingness to pay remains $100. They are likely to find a new price that works for both within this range.
Learning Objectives
- Comprehend the impact of taxation on the behaviors of buyers and sellers, particularly in relation to their engagement in the market and the overall economic well-being.