Answer to Question #229810 in Microeconomics for John

Question

Suppose a Php 6 excise tax is imposed on the good. Determine the new equilibrium (3 points) price and quantity. (Hint : Inverse supply function of Px + excise tax)

Answer 1

Since the exercise tax added is Php 6, then the new equilibrium price and quantity will be given by getting the supply function plus the exercise tax imposed.

The equation Qs = c + dP could be used to get the supply function, where Qs= quantity supplied. C = the level of supply independent of price, and P = the market price of the product. For instance, when the supply function is 100, then the new equilibrium price and quantity will be 100+6 = 106