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.

Question

Quizplus · Accepted Answer

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.

Kate Is a Personal Trainer Whose Client William Pays $80