Tax Problem. Consider a perfectly competitive market were demand is Q = 100 - P and Supply is
Q = P - 10.

-Refer to Tax Problem.If the government imposes a $10 per unit consumption tax,then the market will produce

Question

Tax Problem. Consider a perfectly competitive market were demand is Q = 100 - P and Supply is 
Q = P - 10.

-Refer to Tax Problem.If the government imposes a $10 per unit consumption tax,then the market will produce

Quizplus · Accepted Answer

With a $10 per unit consumption tax, the new supply equation becomes Q = P - 20, as sellers will now require P - 10 (original supply price) + 10 (tax) to supply a unit. Setting the new supply equal to demand to find equilibrium: 100 - P = P - 20, solving this gives P = 60, and substituting back into either the demand or new supply equation gives Q = 40.