Multiple Choice
What is the deadweight loss caused by a tax?
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6. Introduction to Taxes
Quantitative Analysis of Taxes
Multiple Choice
The supply and demand curves for a product are as follows. What is the amount suppliers receive if a \$0.50 tax is imposed upon consumers?
QD = 600 – 100P
QS = -150 + 150P
A
\$2.80
B
\$3.00
C
\$3.20
D
\$3.30
E
\$3.50
Verified step by step guidance1
Identify the initial equilibrium by setting the quantity demanded (QD) equal to the quantity supplied (QS). This gives us the equation: 600 - 100P = -150 + 150P.
Solve the equation from step 1 for the equilibrium price (P) by combining like terms and isolating P on one side of the equation.
Calculate the equilibrium quantity by substituting the equilibrium price back into either the demand or supply equation.
Consider the effect of the \$0.50 tax imposed on consumers. This tax shifts the demand curve downward by \$0.50, resulting in a new demand equation: QD = 600 - 100(P + 0.50).
Find the new equilibrium by setting the new demand equation equal to the supply equation and solve for the new equilibrium price. The amount suppliers receive is the new equilibrium price minus the tax.
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