Question 12 (1 point) Consider the following market for an ozone-depleting subst

Question

Question 12 (1 point) Consider the following market for an ozone-depleting substance CFC-11. P is price per pound. Q is in thousand pounds. Regular demand function: Q40 P Regular supply function: Q = 10 + P Assume EPA imposes an escalating exercise tax on the CFC-11 producers. When EPA increases this tax from $4 to $8, the production of CFC-11 is reduced fromthousands pounds tothousands pounds. (You need to find the quantity when tax is $4 and the quantity when tax is $8) 1) 25; 23 2) none of the other answers are correct 3) 29; 4) 25; O5) 23; 27 21 21 Save

Explanation / Answer

Option (5).

A tax of $T per unit lowers the effective price received by sellers by $T, shifting supply curve leftward.

When Tax = $4, new supply function becomes

Q = 10 + P - 4

Q = 6 + P

Equating with demand curve,

40 - P = 6 + P

2P = 34

P = $17

Q = 40 - 17 = 23

When Tax = $8, new supply function becomes

Q = 10 + P - 8

Q = 2 + P

Equating with demand curve,

40 - P = 2 + P

2P = 38

P = $19

Q = 40 - 19 = 21

Quantity decreases from 23 thousand pounds to 21 thousand pounds.

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