The market for widgets has demand , where is quantity demanded and is the price in rupees. There are 10 price-taking firms, each with cost function ( is the firm's own output). There is no new entry. The government imposes an excise tax of Rs. 2 per unit, to be paid by sellers. The equilibrium market price is:
Tap an option to check your answer.
Checking your account…
The market for widgets has demand Q=100-10p, where Q is quantity demanded and p is the price in rupees. There are 10 price-taking firms, each with cost function c(q)=q²/2 (q is the firm's own output). There is no new entry. The government imposes an excise tax of Rs. 2 per unit, to be paid by sellers. The equilibrium market price is: (A) 7 (B) 6 (C) 5 (D) 2
Also written as: The market for widgets has demand Q=100-10p, where Q is quantity demanded and p is the price in rupees. There are 10 price-taking firms, each with cost function c(q)=q^2/2 (q is the firm's own output). There is no new entry. The government imposes an excise tax of Rs. 2 per unit, to be paid by sellers. The equilibrium market price is:
Taxation: incidence and efficiency has come up 79 times in 7 exams since 2009.
This question is on Tax incidence, part of Taxation: incidence and efficiency in Public Economics.
Who actually bears a tax, whoever the law makes pay.
TestStop has 26 past-paper questions on this subtopic.
Question from the DSE 2016 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.