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Suppose the demand for a product is given by P = 50 - Q

Marketing Jan 11, 2021

Suppose the demand for a product is given by P = 50 - Q. Also, the supply is given by P = 10 + 3Q.

If a $12 per-unit excise tax is levied on the buyers of a good, what proportion of the tax will be paid by the buyers?

a. 75%

b. 20%

c. 0%

d. None of these

e. 40%

Expert Solution

First we need to find the equilibrium price which is given by

Demand = supply

50 - Q = 10 + 3Q

40 = 4Q

Q= 10

P = 50 - Q = 50 - 10 = 40

Proportion of tax, assuming the price is exclusiveof taxes = 12/40 = 30% which is not there in any other option, option d is the answer.

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