Use the Following to Answer Questions

question 114

Multiple Choice

Use the following to answer questions
Scenario: The Market for Good X:
The market for good X can be depicted with the following demand and supply equations:
Demand: P = 50 - 0.5Q
Supply: P = 0.33Q
where P is price per unit and Q represents quantity in units. Policy makers plan on imposing a $1 per unit tax on this good.
-(Scenario: The Market for Good X) Look at the scenario The Market for Good X. The per-unit tax incidence on consumers is equal to:

• A) $1.00.
• B) $0.60.
• C) $58.80.
• D) $60.00.
• Answer Key

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Definitions:

Expiration Date

In finance, this term often refers to the date on which a derivative contract, such as an option or futures contract, becomes void and ceases to trade.

Option Contract

A financial derivative contract that grants the buyer the right, but not the obligation, to buy or sell an asset at a specified price on or before a certain date.

Exercise Price

The price at which the holder of an option can buy or sell the underlying security.

European Calls

Options contracts that allow the buyer to purchase a stock or asset at a specific price on or before the expiration date, but only on that date.