The inverse demand function for apples is defined by the equation p = 214 - 5q, where q is the number of units sold. The inverse supply function is defined by p = 7 + 4q. A tax of $36 is imposed on suppliers for each unit of apples that they sell. When the tax is imposed, the quantity of apples sold falls to

Question

Quizplus · Accepted Answer

When the tax is imposed on the suppliers, the supply curve shifts upwards by the amount of the tax so that the new supply curve is p=7+4q+36=43+4q.

To find the new quantity of apples sold, we equate the new supply equation with the original demand equation:

214 - 5q = 43 + 4q

This gives 9q = 171 and so q = 19.

Therefore, the quantity of apples sold falls to 19 when the tax is imposed. The answer is therefore (D).

The Inverse Demand Function for Apples Is Defined by the Equation