Consider the following market for CFC-11, a known ozone-depleting substance:
Demand: Q = 20 - 1.5P Supply: Q = 5 + 0.5P
where P is price per pound.
Assume the governmental authority imposes a $5 per pound excise
tax on CFC-11, which shifts the supply function to Q' = 2.5 + 0.5P. Use this information for any or all of the next three questions below.
-What is the equilibrium price and quantity of CFC-11 after the excise tax?

Question

Quizplus · Accepted Answer

To find the new equilibrium price and quantity after the excise tax, we set the new supply function equal to the demand function: 20 - 1.5P = 2.5 + 0.5P. Solving for P gives us $8.75. Substituting P back into either the demand or the new supply equation gives us Q = 6.875.

Consider the Following Market for CFC-11, a Known Ozone-Depleting Substance