Question:
Qs = -30 + P and QD = 240 – 2P. A change in the product tax makes Qs = -36 + P. How will the change in the tax affect equilibrium price?
(1) It will fall by Rs. 2.
(2) It will fall by Rs. 6.
(3) It will rise by Rs. 2.
(4) It will rise by Rs. 6.
(5) It will rise by Rs. 90.
Correct Answer:
(3)
Answer Explanation:
Initial Equilibrium (Qs = QD): $-30 + P = 240 – 2P rightarrow 3P = 270 rightarrow P = 90$. New Equilibrium (New Qs = QD): $-36 + P = 240 – 2P rightarrow 3P = 276 rightarrow P = 92$. The equilibrium price rises from 90 to 92. The price rises by Rs. 2.
Topic: Market Equilibrium Year: 2018
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