-The figure above shows the market for digital cameras. If a tax on digital cameras of $30 per camera is imposed, and at the same time new technology lowers the marginal cost of producing a digital camera by $30 at each level of output, the equilibrium quantity of digital cameras is ________ thousand cameras and the efficient quantity of digital cameras to produce is ________ thousand cameras.

Question

Quizplus · Accepted Answer

The tax and the decrease in marginal cost have opposite effects on the equilibrium quantity. The tax will decrease the equilibrium quantity, while the decrease in marginal cost will increase the equilibrium quantity. The efficient quantity is the quantity where the marginal cost equals the marginal benefit. The tax will not affect the efficient quantity, but the decrease in marginal cost will decrease the efficient quantity. Therefore, the equilibrium quantity will be higher than the efficient quantity.

-The Figure Above Shows the Market for Digital Cameras