Assume the Demand Function for Basketballs Is Given by Q_D

question 5

Multiple Choice

Assume the demand function for basketballs is given by Q_D = 150 −3P + 0.1I,where P = price of a basketball,and I = average income of consumers.Also,assume the supply of basketballs is given by Q_S = 2P.If the market for basketballs is perfectly competitive,and the average income is equal to $1,500,what is the equilibrium price and quantity? What if a 20 percent income tax is introduced?

• A)Before the tax,the equilibrium price was $60,and 120 basketballs were traded.The introduction of an income tax would have no effect on the equilibrium price and quantity.
• B)Before the tax,the equilibrium price was $60,and 120 basketballs were traded.Once the income tax is introduced,the price would decrease by $6,and only 108 basketballs would be traded.
• C)Before the tax,the equilibrium price was $60,and 120 basketballs were traded.Once the income tax is introduced,the price would decrease by $6,which would cause the quantity of basketballs traded to increase.
• D)Before the tax,the equilibrium price was $60,and 108 basketballs were traded.Once the income tax is introduced,the price would decrease by $6,and only 120 basketballs would be traded.

---

Definitions:

Work in Process

Inventory that has begun the manufacturing process but is not yet completed, a state between raw materials and finished goods.

Direct Labor

Workers who are directly involved in the manufacturing of products or provision of services, whose wages are directly tied to the production process.

Work in Process

Inventory consisting of materials and labor that are partially through the manufacturing process but not yet complete.

Direct Labor

The cost of wages and other compensations for employees who are directly involved in the production of goods or services.