The Inverse Demand Function for Lemons Is Defined by the Equation

question 19

Multiple Choice

The inverse demand function for lemons is defined by the equation p = 120 - 11q, where q is the number of crates that are sold.The inverse supply function is defined by p = 8 + 3q.In the past there was no tax on lemons but now a tax of $84 per crate has been imposed.What are the quantities produced before and after the tax was imposed?

• A)4 crates before and 3 crates after.
• B)8 crates before and 2 crates after.
• C)16 crates before and 5 crates after
• D)16 crates before and 5 crates after.
• E)None of the above.

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Definitions:

Marginal Rate

Often refers to the additional rate of tax that applies to each extra dollar of income or the additional rate of return.

Candy

Sweet confections made from sugar and other ingredients, popular as a treat or snack.

Pareto Optimal

A condition where no individual or preference criterion can be better off without making at least one individual or preference criterion worse off, representing an optimum allocation of resources.

Labor

The human effort, including physical and mental capabilities, used in the production of goods and services.