Question

In: Economics

The demand curve for a good is given by the linear function Qd = 60 -...

The demand curve for a good is given by the linear function Qd = 60 - P, where P is the price buyers pay for the good and Qd is the quantity of the good demanded. The supply curve for the good is given by the linear function Qs = 2P, where P is the price sellers receive for the good and Qs is the quantity of the good supplied. If a tax of $12 per unit is levied on buyers of the good, what will happen to the market price of the good in competitive equilibrium?

a. The market price will rise by $8.

b. The market price will rise by $4.

c. The market price will fall by $12.

d. The market price will fall by $8.

e. The market price will fall by $4.

Solutions

Expert Solution

Qd = 60 - P

Qs = 2P

Equilibrium

60 -P = 2P

60 = 3P

P = 60/3

= 20

After tax:

60 -P = 2(P -12)

60 - P = 2P -24

84 = 3P

P = 84/3

= 28

Increase in price is equal to $ 8

Right Answer: (A)

Rahul Sunny answered 1 year ago
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