Consider the Following Market for CFC-11, a Known Ozone-Depleting Substance

question 15

Multiple Choice

Consider the following market for CFC-11, a known ozone-depleting substance:
Demand: Q = 20 - 1.5P Supply: Q = 5 + 0.5P
where P is price per pound.
Assume the governmental authority imposes a $5 per pound excise
tax on CFC-11, which shifts the supply function to Q' = 2.5 + 0.5P. Use this information for any or all of the next three questions below.
-What is the equilibrium price and quantity of CFC-11 before the excise tax?

• A) P = $8.75; Q = 5
• B) P = $7.5; Q = 8.75
• C) P = $6.875; Q = 8.75
• D) none of the above

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