Figure 6-27
This figure shows the market demand and market supply curves for good Z.
-Refer to Figure 6-27.Suppose a tax of $3 per unit is imposed on this market.What will be the new equilibrium quantity in this market?

Question

Figure 6-27
This figure shows the market demand and market supply curves for good Z. 
-Refer to Figure 6-27.Suppose a tax of $3 per unit is imposed on this market.What will be the new equilibrium quantity in this market?

Quizplus · Accepted Answer

When a tax is imposed on the market, the supply curve shifts to the left by the amount of the tax, in this case $3. The new equilibrium price will be higher than the original price, and the quantity of the good purchased will decrease. From the graph, we can see that the original equilibrium quantity is 10 units. Since the demand curve is relatively steep and the supply curve is relatively flat, the decrease in quantity will be smaller than the increase in price. Therefore, the new equilibrium quantity will be between 8 units and 10 units, but closer to 8 units. Thus, the best choice is C.

Figure 6-27 This Figure Shows the Market Demand and Market Supply Curves