Asked by Rocio Lopez on Jun 04, 2024
Verified
(Advanced analysis) Answer the question on the basis of the following information: The equations for the demand and supply curves for a particular product are P = 10 - .4Q and P = 2 + .4Q,where P is price and Q is quantity expressed in units of 100.After an excise tax is imposed on the product,the supply equation is P = 3 + .4Q. Refer to the given information.The equilibrium quantity after the excise tax is imposed is:
A) 750 units.
B) 850 units.
C) 875 units.
D) 950 units.
Excise Tax
A tax levied on the manufacture, sale, or consumption of specific goods within a country, such as alcohol, tobacco, and gasoline.
Demand Curves
Graphs that depict the relationship between the price of a product and the quantity of the product that consumers are willing to purchase at that price.
Supply Curves
Graphical representations that show the relationship between the price of a good or service and the quantity of that good or service that suppliers are willing to offer for sale.
- Examine the impact of particular taxes, such as excise and property taxes, on market equilibrium, the distribution of tax burdens, and the revenue collected by the government.
Verified Answer
AS
ashish salpeJun 09, 2024
Final Answer :
C
Explanation :
To find the equilibrium quantity after the excise tax is imposed, we need to find where the new supply curve (P = 3 + .4Q) intersects with the original demand curve (P = 10 - .4Q).
Set the two equations equal to each other:
10 - .4Q = 3 + .4Q
Solve for Q:
10 - 3 = .4Q + .4Q
7 = .8Q
Q = 8.75 (multiply by 100 to get units)
So the equilibrium quantity after the excise tax is imposed is 875 units.
Set the two equations equal to each other:
10 - .4Q = 3 + .4Q
Solve for Q:
10 - 3 = .4Q + .4Q
7 = .8Q
Q = 8.75 (multiply by 100 to get units)
So the equilibrium quantity after the excise tax is imposed is 875 units.
Learning Objectives
- Examine the impact of particular taxes, such as excise and property taxes, on market equilibrium, the distribution of tax burdens, and the revenue collected by the government.