(Advanced Analysis)The Equations for the Demand and Supply Curves for a Particular

question 235

Multiple Choice

(Advanced analysis) The equations for the demand and supply curves for a particular product are P = 10 − 0.4 Q and P = 2 + 0.4 Q, 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 + 0.4 Q. The excise tax on each unit of the product

• A)is $1.
• B)is $2.
• C)is $3.
• D)cannot be determined with the information given.

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Definitions:

Equilibrium

A state in which market supply and demand balance each other, and as a result, prices become stable.

MU/P Ratio

The ratio of marginal utility (MU) to price (P), used to determine the optimal consumption point where consumer satisfaction per unit of cost is maximized.

Marginal Utility

The heightened benefit received from using one more unit of a good or service.