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The following graph depicts the market for CT scanners in S
The following graph depicts the market for CT scanners in S. the United States. $220,00 Assume an initial equilibrium at D1 and S1 with price of $200.00 $200,000 per machine. If the government places a $20,000 excise tax on each new scanner sold, the new Quantity of CT Scanners equilibrium price will be a. there's not enough information to determine what the new price will be. b. less than $220,000. c. at least $220,000. d. exactly $220,000. D.
Expert Solution
The correct option is b. less than $220,000.
Explanation: If the government imposes an excise tax of $20,000 on each new scanner sold, the new equlibrium price will be less than $220,000 because when a tax is imposed the price that the consumers pay rises by less than the tax. Suppose that the tax is collected from the producers, the producers would still receive the price of $200000 and would supply the same quantity of CT scanners but the quantity demanded by the consumers would be less than the equilibrium quantity. This would create a shortage and drive the prices down. Therefore the new equilibrium price would be between $200000 and $220,000.
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