Question

Suppose the inverse supply curve for good X is Px = 120 + 0.5Qs. If a 10% ad valorem tax is placed on Good X, what is the new inverse supply curve? If a $10 excise tax is placed on Good X, what is the new inverse supply curve?

Answer 1

$P_X=120+0.5Q_S$

If 10% ad-valorem tax is imposed on good x

then the new equation of the supply curve will be

$P_X-0.10P_X=120+0.5Q_S$

$0.9P_X=120+0.5Q_S$

$P_X=133.33+0.55Q_S$

If a $10 excise tax is imposed on the supply side, then the new equation of the supply curve will be

$P_X-10=120+0.5Q_S$

$P_X=130+0.5Q_S$

$P_X=130+0.5Q_S$