The inverse demand function for eggs is p = 84

Question

The inverse demand function for eggs is p = 84 - 9q, where q is the number of cases of eggs. The inverse supply is p = 7 + 2q. In the past, eggs were not taxed, but now a tax of 33 dollars per case has been introduced. What is the effect of the tax on the quantity of eggs supplied?

Quizplus · Accepted Answer

The equilibrium without tax is found by setting the inverse demand equal to the inverse supply: 84 - 9q = 7 + 2q, solving gives q = 7. With a tax of 33, the new supply equation becomes p = 7 + 2q + 33. Setting the new supply equal to demand: 84 - 9q = 40 + 2q, solving gives q = 4. The quantity drops from 7 to 4, a decrease of 3 cases.