Let supply be given by P = 5Q and demand by P = 19 - 2Q. Suppose we now place a tax of 5 per unit of output on the seller. The new equilibrium price is:

Question

Quizplus · Accepted Answer

Initially, the equilibrium price and quantity are found by equating supply and demand:

5Q = 19 - 2Q 
Solving for Q: 
7Q = 19 
Q = 2.71

Substituting back into either equation gives the equilibrium price: 
P = 5(2.71) = 13.55

When a tax of 5 is imposed on the seller, the supply curve shifts up by 5, becoming: 
P = 5Q + 5

The new equilibrium is found by equating the new supply curve with the original demand curve:

5Q + 5 = 19 - 2Q

Solving for Q: 
7Q = 14 
Q = 2

Substituting back into either equation gives the new equilibrium price: 
P = 5(2) + 5 = 15

Therefore, the new equilibrium price is $15, and the best choice is C).

Let Supply Be Given by P = 5Q and Demand