The inverse demand function for cases of whiskey defined by p = 186 - 6q, and the inverse supply function is defined by p = 90 + 2q.Originally there was no tax on whiskey.Then the government began to tax suppliers of whiskey $32 for every case they sold.How much did the price paid by consumers rise when the new equilibrium was reached?
A)It rose by $32.
B)It rose by $24.
C)It rose by $22.
D)It rose by $34.
E)None of the above.

Question

Quizplus · Accepted Answer

The tax shifts the supply curve upwards by the amount of the tax ($32). To find the new equilibrium price paid by consumers, we need to adjust the supply function to account for the tax and then solve for the new equilibrium where the adjusted supply equals demand. The original equilibrium is found where the demand and supply curves intersect without the tax. With the tax, the supply function becomes p = 90 + 2q + 32. Solving the adjusted supply and demand equations for the new equilibrium price and quantity, and comparing the new consumer price to the original, shows that the price paid by consumers rises by less than the full amount of the tax, indicating that the burden of the tax is shared between consumers and producers. The correct answer is that the price paid by consumers rises by $24, which is less than the $32 tax, reflecting the division of the tax burden between consumers and producers.

The Inverse Demand Function for Cases of Whiskey Defined by P