Suppose that a specific tax of $3 is imposed on producers of bread.The bread market supply is Qs = 10 + 0.5P and the bread market demand is Qd = 100-P.What is the change in the equilibrium quantity of bread induced by the tax incidence?
A) Equilibrium quantity decreased by three units.
B) Equilibrium quantity increased by two units.
C) Equilibrium quantity decreased by one unit.
D) Equilibrium quantity increased by one unit.

Question

Quizplus · Accepted Answer

To find the new equilibrium quantity after the tax, we need to find the new supply and demand curves. The tax increases the cost of production for bread producers by $3, so their new supply curve is Qs = 7 + 0.5P (10-3=7).

To find the new equilibrium, we set Qs equal to Qd and solve for P:
7 + 0.5P = 100 - P
1.5P = 93
P = $62

Now we can find the quantity demanded and supplied at the new equilibrium price:
Qs = 7 + 0.5(62) = 38
Qd = 100 - 62 = 38

So the new equilibrium quantity is 38, which is 1 unit less than the original equilibrium quantity of 39 (found when there was no tax). Therefore, the correct answer is C -the equilibrium quantity decreased by one unit.

Suppose That a Specific Tax of $3 Is Imposed on Producers