Asked by Samende Kamana on Jun 28, 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 before the excise tax is imposed is:
A) 800 units.
B) 1,000 units.
C) 1,200 units.
D) 1,400 units.
Excise Tax
An excise tax is a tax imposed on the sale of specific goods and services, such as tobacco, alcohol, and gasoline, often levied at the time of purchase.
Demand Curves
Graphical representations showing the relationship between the price of a good and the quantity demanded.
Supply Curves
Supply curves graphically represent the relationship between the price of a good or service and the quantity of it that suppliers are willing to produce and sell.
- Analyze the effects of specific taxes, including excise taxes and property taxes, on market equilibrium, tax incidence, and government revenue.
Verified Answer
AB
April BarrowJun 30, 2024
Final Answer :
B
Explanation :
To find the equilibrium quantity before the excise tax is imposed, we need to set the quantity demanded (Qd) equal to the quantity supplied (Qs) and solve for Q.
Quantity demanded: P = 10 - 0.4Q
Quantity supplied before the tax: P = 2 + 0.4Q
10 - 0.4Q = 2 + 0.4Q
8 = 0.8Q
Q = 10 units of 100, or 1000 units.
Therefore, the equilibrium quantity before the excise tax is imposed is 1000 units.
Quantity demanded: P = 10 - 0.4Q
Quantity supplied before the tax: P = 2 + 0.4Q
10 - 0.4Q = 2 + 0.4Q
8 = 0.8Q
Q = 10 units of 100, or 1000 units.
Therefore, the equilibrium quantity before the excise tax is imposed is 1000 units.
Learning Objectives
- Analyze the effects of specific taxes, including excise taxes and property taxes, on market equilibrium, tax incidence, and government revenue.