The following graph depicts the market for CT scanners in the United States. Assume an initial equilibrium at D₁ and S₁ with price of $200,000 per machine.If the government places a $20,000 excise tax on each new scanner sold, the new equilibrium price will be A)at least $220,000. B)exactly $220,000. C)less than $220,000. D)there's not enough information to determine what the new price will be.

Question

Quizplus · Accepted Answer

An excise tax increases the cost of production and supply shifts upward by the amount of the tax. Therefore, S₁ shifts to the left by $20,000 and becomes SS2U2B11S2U2B0. The new equilibrium occurs at the intersection of the new supply curve (SS2U2B11S2U2B0) and the original demand curve (D₁) which results in a new price of less than $220,000.

The Following Graph Depicts the Market for CT Scanners in the United