(Advanced analysis) The equations for the demand and supply curves for a particular product are P = 10 − 0.4Q and P = 2 + 0.4Q, where P is price and Q is quantity expressed in units of 100. After an excise tax is imposed on the product, the supply equation is P = 3 + 0.4Q. The equilibrium quantity after the excise tax is imposed is

Question

Quizplus · Accepted Answer

To find the equilibrium quantity after the excise tax is imposed, we need to find the intersection of the new supply curve (P=3+0.4Q) with the original demand curve (P=10-0.4Q).

Setting the two equations equal to each other, we get:

10 - 0.4Q = 3 + 0.4Q

Simplifying:

7 = 0.8Q

Q = 8.75 units (in hundreds, or 875 units in actual numbers)

Therefore, the equilibrium quantity after the excise tax is 875 units.

(Advanced Analysis) the Equations for the Demand and Supply Curves