Question 12 (1 point) Consider the following market for an ozone-depleting subst

Question

Question 12 (1 point) Consider the following market for an ozone-depleting substance CFC-11. P is price per pound. Q is in thousand pounds. Regular demand function: Q = 40-P Regular supply function: Q = 10 + P Assume EPA imposes an escalating exercise tax on the CFC-11 producers. When EPA increases this tax from $4 to $8, the production of CFC-11 is reduced from quantity when tax is $4 and the quantity when tax is $8) thousands pounds toth ousands pounds. (You need to find the 1) 25; 2) none of the other answers are correct 3) 29 4) 25 5) 23; 23 27 21 21 Save

Explanation / Answer

Correct Option is (5).

A unit tax of $N per unit will decrease the price received by producers by $N at every output level, shifting supply curve toward left..

When Tax = $4, after-tax supply function:

Q = 10 + P - 4

Q = 6 + P

Since quantity demanded = quantity supplied,

40 - P = 6 + P

2P = 34

P = $17

Q = 40 - 17 = 23

When Tax = $8, after-tax supply function:

Q = 10 + P - 8

Q = 2 + P

Since quantity demanded = quantity supplied,

40 - P = 2 + P

2P = 38

P = $19

Q = 40 - 19 = 21

Equilibrium output is reduced from 23 thousand pounds to 21 thousand pounds.

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