(Advanced Analysis)Answer the Question on the Basis of the Following

question 77

Multiple Choice

(Advanced analysis) Answer the question on the basis of the following information: The equations for the demand and supply curves for a particular product are P = 10 - .4Q and P = 2 + .4Q,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 + .4Q. Refer to the given information.The efficiency loss of this tax is:

• A) $125.00.
• B) $62.50.
• C) $87.50.
• D) $1.00.

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Definitions:

Consumption

The part of income or the amount of wealth that is used for purchasing goods and services for personal use.

APC

The Average Propensity to Consume indicates the share of income used for consumption purposes.

Disposable Income

Economic reserves left for households after income tax deductions, meant for spending and saving.

Consumption

The process by which goods and services are used by households, contributing to the overall demand in an economy.