Question

Price 25 22 19 17 15 10 100 200 250 350 Quantity A$7 tax is imposed on this market. What is the price consumers will pay for this good or service? $19 O$15 $22 $25

Answer 1

Answer

The correct answer is (c) $22.

If tax is imposed on producer then this means that Marginal cost of producing and selling will increase and hence at any price level they will now supply less and hence Supply will decrease and shift to the left. We can see from above figure that Supply has been shifted from S to S'.

As equilibrium occurs when Demand = supply or when demand and supply intersect and we can see from above graph that demand and supply intersect when quantity = 100 and price = 22. Thus Market price = 22 and hence Price consumer will pay after tax is 22.

So from 22 that seller will receive, they will pay $7 as tax to government. Thus Final price sellers will receive = 22 - 7 = 15

Hence Quantity produced and sold = 100 units, Price consumer s will pay = $22 per unit, Price sellers will receive = $15 per unit and Government will receive per unit tax of $7.

Hence, the correct answer is (c) $22.